By David Hodari 

Fresh coronavirus lockdown measures in Europe and investor jitters ahead of next week's presidential election in the U.S. piled pressure on oil prices Thursday.

U.S. crude futures dropped by as much as 6.6% to $34.92 a barrel. While they later recouped some of those losses, they were last on course for their lowest close in about five months. Brent crude, the global benchmark, fell 3.6% to $38.26 a barrel. The benchmarks are down 10% and 9%, respectively, so far this week.

"Oil has been propped up for so long by hope. It's consumer driven and many consumers in Europe are being locked up," said Edward Marshall, a commodities trader at Global Risk Management. "You can prop up equities with free cash but you can't do that with oil."

After plunging earlier in the year, oil prices clawed back some of their losses over the summer months as the global economy gradually reopened and Covid-19 cases declined. But an accelerating second wave of infections forced both Germany and France to implement new lockdown measures Wednesday, erasing a chunk of oil's fragile recovery.

Many analysts had cautioned that prices could decline, but the speed of the selloff has caught some traders off guard.

"It has come dramatically fast," said Donald Morton, a senior vice president at Herbert J. Sims Co. who oversees an energy trading desk in Haverhill, Mass. "The buyers are backing off."

A return to lockdowns in some of Europe's largest economies may feel familiar to investors who in March saw some oil prices turn negative when coronavirus restrictions collided with a price war between Saudi Arabia and Russia. But the absence of that price war and more nuanced measures this time around mean a similar drop is unlikely, Mr. Marshall said.

Even so, restricted economic activity across Europe means that analysts are having to reassess their oil price forecasts for the months ahead.

UBS slashed $5 a barrel off its oil-price forecasts on Thursday, citing lower European demand and rising Libyan supply.

Libya recently negotiated an end to an eight-month blockade of its supply. And data from both the American Petroleum Institute and the Energy Information Administration showed surprise supply builds in the U.S. last week. The two factors have pressured prices in recent days.

"Today's drop is related to fundamentals because we might easily see another 10% drop in oil demand in Europe in November," said Bjørnar Tonhaugen, head of oil market research at consulting firm Rystad Energy.

With European daily oil demand around 14 million barrels last year and around 13 million barrels this September, new restrictions may cut at least another million barrels a day from that figure next month, Mr. Tonhaugen said.

Volatility ahead of next week's U.S. presidential election was also adding to the pressure on oil prices.

Despite polls showing former Vice President Joe Biden with a firm lead over President Trump, investors are worried about repeating their mistake of 2016 when they discounted a surprise result.

"Everyone made a mistake in 2016 and it's similar this time around looking at the polls and the Covid cases," said Mr. Tonhaugen. "That uncertainty is now so large that people want to take their risk off the table in all asset classes."

Shares of S&P 500 energy producers slid on Thursday, bringing their drop for the year to roughly 55%. Analysts are also preparing to gauge Friday's third-quarter earnings reports from Exxon Mobil Corp. and Chevron Corp., with the world's biggest energy companies so far this year posting some of their worst results in years. Exxon said Thursday that it would lay off 1,900 employees in the U.S., becoming the latest major oil company to reduce its workforce.

For much of the year, oil prices have been too low for many U.S. producers to cover their costs and a fresh selloff could threaten projections for a 2021 rebound. Layoffs, bankruptcies and a wave of mergers and acquisitions have all swept through the oil patch in recent months. From the start of the year through September, 40 North American energy producers filed for bankruptcy protection, according to law firm Haynes and Boone LLP.

Even after the U.S. election, coronavirus-driven lockdown measures will persist, once again hammering oil demand in some of the world's largest economies.

As a result, the market will be looking to the Organization of the Petroleum Exporting Countries and its allies for action. The cartel is expected to meet at the end of November and in January, and it plans to further relax the production cuts agreed in the wake of the oil market crash earlier this year.

"The latest price slide is likely to spur OPEC into action once again," analysts at Commerzbank said in a note. "We believe it is increasingly unlikely that oil production will be stepped up from January."

Amrith Ramkumar contributed to this article.

Write to David Hodari at David.Hodari@dowjones.com

(END) Dow Jones Newswires

October 29, 2020 12:11 ET (16:11 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.