Oil down nearly 2% amid Covid-19, US election concerns

US oil fell nearly two per cent on Friday as new lockdowns in Europe to contain the spread of the coronavirus disease raised questions about the outlook for crude demand, while markets remained on edge over the drawn-out vote counting in the US election.

West Texas Intermediate was down 73 cents, or 1.9 per cent, at $38.06 a barrel at 0232 GMT, after dropping 0.9 per cent on Thursday. Brent crude was off 72 cents, or 1.8 per cent, at $40.21, having fallen 0.7 per cent in the previous session. Still, the contracts are heading for their first weekly gain in four.

Italy recorded its highest daily number infections on Thursday and cases surged at least 120,276 in the United States, the second consecutive daily record as the outbreak spreads across the country.

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"The situation is likely to get worse as the weather gets colder, with the threat of European-style lockdowns looming on the horizon," said Bob Yawger, director of energy futures at Mizuho Securities in New York.

The European Union's executive commission also cut its economic forecast and predicted the bloc won't see a rebound to pre-virus levels until 2023.

Vote counting and trends from the US election point to the Republicans retaining control of the Senate, while Democrats are expected to take a slimmer majority in the House of Representatives, dashing hopes for a large stimulus package, another factor weighing on oil.

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President Donald Trump, without providing evidence, late on Thursday said he would win the election if "legal" votes were counted, the latest effort to cast doubt on counting now heading for a third day.

"The most critical questions for oil are how quickly a Covid-19 vaccine is widely available, whether a US stimulus deal can be achieved in a fractious and uncertain political environment, and how OPEC will respond to demand concerns," said Stephen Innes, chief global market strategist at Axi.

The Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, are expected to delay bringing back 2 million barrels per day of supply in January, given the decline in demand from new Covid-19 lockdowns.

Providing some support for the market, US inventories of crude oil plunged last week, although much of the fall was attributed to production being shut down as another hurricane swept through the Gulf of Mexico.

Stockpiles fell by 8 million barrels in the week to October 30, against analyst expectations of a rise of nearly 900,000 barrels.