Oil Dives With Virus Fears Fueling Further Economic Uncertainty

(Bloomberg) -- Oil fell in New York and the global benchmark Brent plummeted to the lowest level since June after President Donald Trump's positive Covid-19 diagnosis combined with labor market weakness heightened concerns over an economic recovery.

U.S. crude futures declined 4.3% and Brent slid below $40 a barrel in volatile trading on Friday. A top World Health Organization official said the outbreak in the White House constitutes a disease cluster and needs to be taken seriously. While Trump is experiencing mild symptoms, the diagnosis adds another degree of uncertainty to a market reeling from a resurgence of the global pandemic from New York to London.

Meanwhile, U.S. job gains slowed in September and many Americans quit looking for work, further underscoring the shaky state of the economy. U.S. House Speaker Nancy Pelosi said negotiations on a new stimulus with the White House will press ahead. Still, both sides are far apart on the amount of aid.

“President Trump's diagnosis goes right to the idea that Covid-19 is back on the march,” said John Kilduff, a partner at Again Capital LLC. “It's going to cause folks to hunker down again and be very circumspect about traveling. That's a huge negative for petroleum demand.”

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Crude is off to a rocky start in October following a September decline. Demand has been struggling to recover at a time when the Organization of Petroleum Exporting Countries and its allies are sending supply onto the market. Russia raised its crude and condensate production last month, while Saudi Arabia's oil exports jumped to a four-month high in September.

Governments around the world are struggle to control the spread of the virus. In the U.K., Prime Minister Boris Johnson said he won't hesitate to impose new restrictions as governments across Europe tighten measures. Paris may close bars and restaurants again and additional restrictions on movement were imposed in Madrid. In the U.S., South Dakota set records in virus-related cases and deaths, and average daily virus cases in New York City are at the highest since June.

There are “concerns about Covid causing a second wave of demand slowdown,” said Michael Lynch, president of Strategic Energy & Economic Research. U.S. jobs data on Friday showed “we're not out of the woods as it seemed maybe a month ago.”

Oil options markets have also turned more bearish. On Friday, trading of Brent put options, which help traders profit when prices slide, showed the highest volume since March, according to preliminary trade data compiled by Bloomberg.

Energy stocks were among the worst-performing in the S&P 500 Index this week. The industry is also facing mass layoffs: Suncor Energy Inc. will trim 10% to 15% of its workforce in the next 18 months and Royal Dutch Shell Plc plans to cut as many as 9,000 jobs.

Meanwhile, White House economic adviser Larry Kudlow said in a Bloomberg Television interview that Treasury Secretary Steven Mnuchin expects to discuss a stimulus proposal Friday with Pelosi. Lawmakers have remained at an impasse since August over another round of virus relief that could provide a much-needed boost to demand.

“It's an ugly situation,” said Bob Yawger, head of the futures division at Mizuho Securities. “Trump testing positive for the virus is a slap in the face for all the people who thought that the Covid situation was going to be a thing of the past.”

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