(updates throughout with settlement prices, India Covid situation)
By Barani Krishnan
Investing.com - Oil prices tumbled more than 3% Thursday for their worst loss in a month after a key pipeline for U.S. fuel reopened from a cyberattack, erasing gains from earlier in the week helped by a squeeze in gasoline supplies.
India’s festering Covid situation, which was infecting more than 350,000 people a day and killing over 4,000, added to the downward pressure on oil which counts on the country as its third largest consumer.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down $2.26, or 3.4%, at $63.82 per barrel. It was WTI’s sharpest one-day decline since April 5, when it lost 4.5%.
London-traded Brent, the global benchmark for crude, finished the session down $2.27, or 3.3%, at $67.05. Brent’s previous sharpest loss was also on April 5, when it fell 4.2%.
The price drop was largely triggered by the reopening of the Colonial Pipeline that was shut for six days to contain a cyberattack on the largest fuel delivery system in the U.S. East Coast.
The outage had led to a temporary gasoline squeeze in the No. 1 economic region of America, sending gasoline futures up 2% at one point this week and pump prices to seven-year highs of $3 a gallon. On Thursday, gasoline futures settled down 3% to just under $2.10 per gallon on news that the Colonial Pipeline was back in operation after its operator reportedly paid a $5 million ransom to the hackers of its system. President Joe Biden declined comment when asked about this.
The setback in both oil and crude prices raised questions about the seasonal upward momentum for energy markets ahead of the Memorial Day weekend in the United States.
The occasion, which falls on May 31 this year, has traditionally served as the starting gun for the summer race in oil prices, as demand peaks from Americans who set out for long road trips. But the outbreak of the coronavirus pandemic last year upended this, with only 23 million people traveling by road for Memorial Day 2020, the lowest on record since the American Automobile Association began recording the data in 2000. The AAA expects 37 million travelers this time, up 60% from last year.
Demand for oil has improved remarkably from a year ago, with the 50 U.S. states having reopened most or all of their economies from Covid-lockdowns and restrictions. The U.S. Center for Disease Control and Prevention, universally known by its acronym CDC, on Thursday waived the need for masking or social restrictions for Americans fully vaccinated from the virus — a major step toward economic rehabilitation.
Global stockpiles of oil are also back to five-year inventory norms from a seemingly unmanageable glut just a year ago that drove WTI to its first-ever negative pricing of minus $40 per barrel.
Yet, with U.S. crude exports falling spectacularly by more than half last week to 1.8 million barrels per day from a previous record high of 4.1 million daily, some traders remained unsure about global demand for oil. This was especially so with major consumers like India and Brazil experiencing new Covid catastrophes.
India reported 362,727 coronavirus cases on Thursday, bringing its total infections to 23,703,665, according to figures released by the health ministry. It also reported 4,120 fatalities, with the total death toll now at 258,317.
Two Indian states and the union territory of Delhi have suspended Covid-19 vaccinations for people aged 18 to 44 due to shortages.
In Delhi, which encompasses the Indian capital of New Delhi, Deputy Chief Minister Manish Sisodia on Wednesday tweeted: “We are forced to shut down 100 Covaxin vaccination sites in 17 schools due to no supply.” He blamed the shortages on “vaccine mismanagement” by the central government, adding that India’s decision to export vaccines was its “biggest mistake.”
“I don’t think we are completely there yet with oil demand,” said John Kilduff, founding partner at New York-based energy hedge fund Again Capital. “The India situation is going to take much longer to resolve and the supply-demand balance in the U.S. is still spotty running up to Memorial Day.”