Oil falls on COVID-19-induced demand worries, stronger dollar
Oil fell on Thursday on fresh fuel demand worries because of travel curbs to prevent new coronavirus outbreaks and delays with vaccines and a stronger U.S. dollar weighed on prices.
U.S. West Texas Intermediate (WTI) crude futures fell 36 cents, or 0.7per cent, to $52.49 a barrel at 0738 GMT, erasing Wednesday’s gain.
Brent crude futures fell 46 cents, or 0.8per cent, to $55.35 a barrel, after losing 10 cents on Wednesday.
The U.S. dollar index, which measures the greenback against other major currencies, rose to 90.753 from a January low of 89.206. Buyers using other currencies must pay more for dollar-denominated oil when the greenback rises.
The oil market had been supported earlier this week by a surprisingly large decline in U.S. crude stockpiles in the week to Jan. 22, which analysts said was due to a pick- up in U.S. crude exports and a drop in imports.
But attention is now turning back to demand concerns amid a rise in COVID-19 infections with contagious new variants, a slower rollout of vaccines in Europe, and travel curbs in countries such as China.
“We are moving from just a Q1 demand write off to now pricing in more demand pain in Q2 due to the slow vaccine rollout,” said Stephen Innes, chief global market strategist at Axi.
“Particularly from Europe where the slow vaccine roll-out and the extended lockdowns point to a double-dip recession.”
Stricter vaccine checks by the European Union and delivery hold ups from AstraZeneca and Pfizer have slowed the rollout of shots in the bloc.
Adding to the demand worries, China, the world’s second-largest oil consumer, is now facing a surge in coronavirus cases and seeking to limit travel as it heads into what is normally the busiest travel season of the year, the Lunar New Year holiday.
“China – they were the ones supporting the market. If you have issues forming in China, that really puts a brake on the demand story for now,” said Commonwealth Bank Commodities Analyst Vivek Dhar.
The Chinese Ministry of Transport has forecast the number of trips that will be taken will be up 15per cent from last year, when the virus was raging, but down 40per cent from 2019.
Britain, in lockdown since Jan. 4, on Wednesday clamped down on travel, requiring people arriving from high-risk COVID-19 countries to quarantine for 10 days and barring outbound trips for all but exceptional reasons.
Australia on Thursday extended its suspension of quarantine-free travel with New Zealand, as it investigated two new positive cases of the South African COVID-19 variant.
Data out later on Thursday will likely show the economy of the United States, the world’s biggest oil user, contracted in 2020 at its sharpest pace since 1946 because of the COVID-19 outbreak.
“The economic backdrop remains uncertain as governments struggle to fight off the spread of COVID-19,” ANZ Research said in a note.