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Oil plunges as new coronavirus strain renews demand recovery fears

Published 12/21/2020, 09:31 PM
Updated 12/22/2020, 03:05 AM
© Reuters. FILE PHOTO: The Bryan Mound Strategic Petroleum Reserve is seen in an aerial photograph over Freeport, Texas

© Reuters. FILE PHOTO: The Bryan Mound Strategic Petroleum Reserve is seen in an aerial photograph over Freeport, Texas

By Sonali Paul and Koustav Samanta

MELBOURNE/SINGAPORE (Reuters) -Oil prices dropped nearly 2% on Tuesday, adding to steep losses from the previous session, as a new strain of the novel coronavirus in the United Kingdom triggered concerns over fuel demand recovery.

The fast-spreading new coronavirus strain has shut down much of Britain, and has prompted several countries to close their borders to British travellers and freight.

Brent crude futures were down 88 cents, or 1.7% to $50.03 a barrel at 0730 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell 92 cents, or 1.9%, to $47.05 a barrel.

Both benchmark contracts slid nearly 3% on Monday, partly erasing recent strong gains on the back of the rollout of COVID-19 vaccines, seen as key to easing mobility restrictions.

After the UK government warned that a new variant of the virus seemed to be spreading much faster than previous kinds, India, Pakistan, Russia, Jordan and Hong Kong joined European countries in suspending travel from Britain, and Saudi Arabia, Kuwait and Oman closed their borders completely.

"The nightmare before Christmas scenario has set in, with a combination of the 'mutant virus' compounded by Brexit angst," said Stephen Innes, chief market strategist at Axi, referring to doubts over whether UK Prime Minister Boris Johnson can secure a post-Brexit trade deal with the European Union.

Innes said the oil market had been overbought, so the selloff was inevitable.

With the U.S. dollar rising as a safe-haven currency, U.S.-dollar priced oil is also less attractive for buyers holding other currencies, which added to pressure on prices.

"After the euphoria of vaccines roll-out and a false sense of comfort that the coronavirus is going away, the emergence of the new strain and a reality of a disorderly Brexit, traders would rather take some profit off the table given the erratic movement of markets," said Avtar Sandu, senior commodities manager at Phillip Futures.

Traders will be keeping a close eye on U.S. crude inventory reports, due later in the week, to pick up cues on the near-term market.

© Reuters. FILE PHOTO: The Bryan Mound Strategic Petroleum Reserve is seen in an aerial photograph over Freeport, Texas

A Reuters poll of analysts, conducted ahead of reports from the American Petroleum Institute later on Tuesday and the Energy Information Administration on Wednesday, projected U.S. crude stocks have likely fallen by 3.3 million barrels in the week to Dec. 18. [EIA/S]

Latest comments

boo
Fake news....”new strain” is all to about getting attention of the voter fraud in the USA
how is the Condition of oil
how is the Condition of oil
"plunges". Oir fair value is around 40$ at current demand levels. It s not a plunge at all it is still overvalued.
What a load of polonies.. It is the same virus, its not a new virus. They just developed the vaccine..
what do you think tommy
Reuters is useless. Deleting investing.com app. Whats a waste
I drove 54.4 miles past 7 days on $1.98 reg. in Virginia..
Jesse what do you mean?
Jesse what do you mean?
Jesse what do you mean?
This is the end of the debt based monetary system
All monetary systems are debt based. Quoting Henry Ford here: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
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