Oil Slips With New Coronavirus Strain Threatening Fuel Demand - Bloomberg

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Photographer: Bing Guan/Bloomberg

Oil declined amid expectations that a new spreading coronavirus variant and related travel curbs will weaken global fuel consumption already under pressure.

Futures slid as much as 2.9% in New York on Tuesday. The new Covid-19 strain that emerged in the U.K. is possibly already in Germany, France and Switzerland, officials in those countries said. Meanwhile, the virus has hospitalized almost twice as many Americans as at any point in the pandemic, leaving medical providers on the brink of crisis with vaccine doses months away for most people.

“There seems to be worry that this vaccine distribution is going to take a while, and also this new strain out there has triggered lockdowns all over again,” said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis.

The U.S. Congress passed the second-biggest economic rescue package in American history as part of a massive year-end spending bill. The Senate followed the House late Monday in passing by overwhelming margins the $2.3 trillion bill.

The threat to near-term demand from additional stay-at-home measures has rippled across oil markets. Brent contracts for prompt delivery are back at a discount against later deliveries -- a bearish pattern known as contango. Still, the longer-term consumption outlook is more optimistic. Gazprom Neft CEO Alexander Dyukov said global demand for oil liquids is set to return to pre-pandemic levels by early or mid-2022 at the latest.

Prices
West Texas Intermediate for February delivery dropped 66 cents to $47.31 a barrel at 10:39 a.m. on the New York Mercantile Exchange Brent for February dropped 62 cents to $50.29 a barrel on the ICE Futures Europe exchange A stronger dollar is also reducing the appeal of oil, which is priced in the currency

“With much of Europe back in lockdown, the prospect of a speedy return to normality is fading,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “The market has been preoccupied with positioning itself for a recovery in fuel demand in 2021. But with the latest virus strain, expectations may become more muted and prices see a further retracement.”

Meanwhile, in the U.S., analysts are expecting crude inventories to decline 3 million barrels, according to a Bloomberg survey. The industry-funded American Petroleum Institute will release its stockpile report Tuesday ahead of a U.S. government report on Wednesday.

Other oil-market news
Oil prices may be surging and Asian fuel consumption recovering, but for the region’s refiners the short-term outlook remains grim. Europe’s air traffic is still only about half what it was when the continent’s national lockdowns began, but tightening supply has propelled a keenly-watched jet fuel price marker to where it was when Covid-19 first hit.

— With assistance by Grant Smith, and Ann Koh

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