Sector movers: Oil stocks slip as risk aversion sweeps across energy space
Oil related stocks were the main drag on London listed stocks on Tuesday, as the sell-off in technology shares Stateside fed into other risk assets, including commodities.
Adding to the dour mood, at the weekend, Saudi Aramco cut prices for Arab Light crude oil shipments to Asia - for the first time since June.
Against that backdrop, front-dated Brent futures slumped by 5.55% to $39.68 a barrel on the ICE, while October West Texas Intermediate was down by 6.2% to $36.64 a barrel on NYMEX.
"Brent’s recent price drop to a two-month low shows the fragile nature of its price recovery," said analysts at Capital Economics.
"We think that an uneven recovery in demand, combined with the hangover of vast oil stocks accumulated in the first half of this year, will limit any price gains, leaving Brent at or around $45 per barrel by end-2020."
In particular, Capital Economics highlighted that fears about a potential second wave of Covid-19 were expected to weigh on energy use in the transport space, especially on jet fuel for commercial passenger flights.
Indeed, on Tuesday, budget carrier EasyJet lowered its planned capacity for the last three months of 2020 to "slightly less" than what it had anticipated at the time of its third quarter update.
EasyJet blamed the "constantly evolving government restrictions across Europe and quarantine measures in the UK, including yesterday's announcements that removed seven Greek islands from the exemption list," adding that "customer confidence to make travel plans has been negatively affected."
So while the global oil market was already in deficit, and was projected to widen in the fourth quarter, "the size of the deficit won’t even come close to matching the scale of the surplus accrued in the first half of the year," said Capital Economics.
"Accordingly, the fact that supply won’t keep up with demand in the coming months doesn’t mean that prices will rise much."
However, continued restraint on the part of OPEC - even as demand continues to recover - meant that the oil market was expected to aslo remain in deficit for most of 2021, which could see Brent push up towards $55 a barrel by the end of next year.
Top performing sectors so far today
Industrial Transportation 2,069.41 +7.42%
Insurance (non-life) 2,788.53 +1.83%
Beverages 20,462.69 +1.51%
Technology Hardware & Equipment 2,141.37 +1.12%
Health Care Equipment & Services 6,497.45 +0.70%
Bottom performing sectors so far today
Oil & Gas Producers 3,975.35 -3.45%
Industrial Metals & Mining 3,223.02 -2.92%
Food Producers & Processors 6,560.61 -2.20%
Oil Equipment, Services & Distribution 4,379.02 -1.88%
Leisure Goods 21,424.96 -1.83%
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