Oil prices fell hard on Friday as surging Covid cases in Europe are likely to depress economic activity and movement there. In addition, it’s looking more likely that the U.S. and China will release some of the oil from their strategic reserves, increasing supply after a period of deficits.
Just a few weeks ago, $100 oil looked like a real possibility. Now, some analysts say that it may stay below $80 for the foreseeable future.
Brent crude, the international benchmark, was down 2.5%, to $79.19 a barrel. West Texas Intermediate (WTI) crude was down 3%, to $76.63 a barrel. WTI is down 9.5% from the high of $84.65 that it reached on Oct. 26.
Oil stocks were falling on Friday as well, with Exxon Mobil (XOM) down 4.9% and Halliburton (HAL) down 4.5%. The Energy Select Sector SPDR exchange-traded fund (XLE) was down 3.6%.
Austria is imposing a new lockdown and is planning a vaccine mandate as cases have soared, while Germany is also considering new restrictions on movement. The headlines about those moves “sent Crude Oil to deep red from green earlier in the session,” Mizuho analysts wrote. The Covid spike in Europe has gotten in the way of the “all-clear” narrative about the virus. Vaccination rates have stalled and cases and deaths have continued to rise. Several countries have made it clear that they will impose significant restrictions on movement if virus cases get out of control.
President Biden, meanwhile, has been talking about ways to depress oil prices by influencing the supply side of the equation. While the U.S. has not announced any specific actions, Biden’s statements appear to have caused prices to slide anyway. He spoke with Chinese President Xi Jinping about coordinating a release of oil from both nation’s strategic petroleum reserves, after which Chinese authorities said they were preparing to release oil.
The U.S. hasn’t said whether it will also tap its reserve, which has more than 600 million barrels of oil. Biden has also written a letter to the Federal Trade Commission asking it to investigate possible price gouging at gas stations, and complained about OPEC’s decision to limit supply. None of these actions has led to concrete change yet, but the president’s focus has added to the risk premium for a bullish bet on oil.
While supply-side interventions may end up slowing oil’s rise, concerns about demand appear to be the main catalyst for Friday’s drop.
“There is no getting around that now the demand signals today are overwhelmingly bearish,” wrote Rystad Energy analyst Louise Dickson. “The risk is real in Europe, especially if Austria’s move to lockdown has a domino effect across the continent. If Germany follows suit, sub-$80 price levels may be here to stay.”
Write to Avi Salzman at avi.salzman@barrons.com
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November 19, 2021 at 10:45PM
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Oil Prices Drop on Bearish Supply and Demand Signals - Barron's
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