According to a Reuters report, oil prices steadied on Monday after strong gains last week, as tough coronavirus lockdowns around the world renewed concerns about global fuel demand, while a stronger U.S. dollar also weighed on prices.
Brent fell 33 cents to settle at $55.66 a barrel, after bouncing off the session low of $54.99. U.S. West Texas Intermediate (WTI) rose a cent to settle at $52.25 a barrel.
New Strain Lockdown Woes
“The renewed concerns about demand due to very high numbers of new corona cases and further mobility restrictions, plus the stronger U.S. dollar, are generating selling pressure,” Commerzbank analyst Eugen Weinberg said.
Worldwide coronavirus cases surpassed 90 million, according to a Reuters tally.
Despite strict national lockdowns, Britain is facing the worst weeks of the pandemic, and in Germany cases are still rising.
Mainland China saw its biggest daily increase in virus infections in more than five months, authorities said, as new infections rose in Hebei, which surrounds the capital, Beijing. In Shijiazhuang, the provincial capital and epicentre of the new outbreak, people and vehicles are barred from leaving, as authorities seek to rein in the spread.
Stronger Dollar Making Crude Expensive
A stronger dollar, supported by hopes for more stimulus to boost the world’s largest economy, also weighed on oil prices. Oil is usually priced in dollars, so a stronger dollar makes crude more expensive for buyers with other currencies.
Monday’s losses follow a strong week for oil prices. Brent and WTI rose around 8% last week, supported by Saudi Arabia’s pledge for a voluntary oil output cut of 1 million barrels per day (bpd) in February and March as part of a deal for most OPEC+ producers to hold production steady.
Effect of Saudi Production Cut
“Although oil prices are declining today, the Saudi move is still keeping them at quite high levels,” said Bjornar Tonhaugen, Rystad Energy’s head of oil markets. “Today the correction is not massive, rather a logical adjustment caused by some bearish demand signals and by a strengthening U.S. dollar.”
The Saudi cut is expected to bring the oil market into deficit for most of 2021 even though lockdowns are hitting demand, analysts said.
Brent could rise to $65 per barrel by summer 2021, Goldman Sachs said, driven by Saudi cuts and the implications of a shift in power to the Democrats in the United States.
Chinese Restrictions Stemming This
Meanwhile fresh restrictions in China, the world’s second largest oil user has resulted in the fall of oil prices on Monday as the global fuel demand concerns loom.
- Brent crude oil futures fell 42 cents, or 0.8%, to $55.57 a barrel by 0146 GMT after earlier climbing to $56.39, its highest since Feb. 25, 2020.
- Brent rose in the previous four sessions.
- U.S. West Texas Intermediate (WTI) slipped 22 cents, or 0.4%, to $52.02 a barrel.
- WTI rose to its highest in nearly a year on Friday.
“Covid hot spots flaring again in Asia, with 11 million people (in) lockdowns in China Hebei province… along with a touch of FED policy uncertainty has triggered some profit taking out of the gates this morning,” Stephen Innes, chief global market strategist at Axi, said in a note on Monday.
Mainland China saw its biggest daily increase in COVID-19 cases in more than five months, the country’s national health authority said on Monday, as new infections in Hebei province, which surrounds the capital Beijing, continued to rise.
Shijiazhuang, Hebei’s capital and epicentre of the new outbreak in the province, is in lockdown with people and vehicles barred from leaving the city as authorities move to curb the spread of the disease.
Most of Europe is now under the strictest restrictions, according to the Oxford stringency index, which assesses indicators such as travel bans and the closure of schools and workplaces.
New US Relief Bills Curbs Oil Price Losses
Still, the oil price losses were curbed by plans for U.S. President-elect Joe Biden to announce trillions of dollars in new coronavirus relief bills this week, much of which will be paid for by increased borrowing.
Crude prices remained supported by Saudi Arabia’s pledge last week for a voluntary oil output cut of 1 million barrels per day (bpd) in February and March as part of a deal under which most OPEC+ producers will hold production steady during new lockdowns.
Oil in Vaccine Optimism
“Oil is still pricing in a great deal of optimism linked to the rollout of Covid-19 vaccines,” Innes said.
“Demand will always improve as the vaccines roll out, and the supply side is under control thanks to OPEC+ and Saudi Arabia’s continued efforts.”
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!