(Bloomberg) Oil extended this week’s slump on fears that rising virus infections and a faster-spreading strain will inflict a new blow on fuel consumption.Futures are down more than 3% in New York since Friday’s close, though recouped some of the session’s earlier losses as U.S. legislation to revive the economy with massive spending lifted equity markets.Many countries have suspended travel with the U.K., where a new Covid-19 variant is forcing more than 16 million people to stay at home. A resurgence of the virus gathered pace in Asia, with Taiwan recording its first locally transmitted infection since April and a cluster of cases swelling in Sydney.
“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.”
Prices are also under pressure after Russia said it will support a further production increase by the OPEC+ coalition in February when the group meets early next month. The 23-nation alliance is gradually restoring the output it halted during the worst period of the pandemic. A stronger dollar is also reducing the appeal of oil, which is priced in the currency.
West Texas Intermediate for February delivery dropped 1.3% to $47.37 a barrel on the New York Mercantile Exchange as of 8:07 a.m. local time
The January contract fell $1.36 when it expired Monday
Brent for February dropped 1.1% to $50.33 on the ICE Futures Europe exchange after settling 2.6% lower on Monday
Crude has surged more than 30% since the end of October, in part due to a series of vaccine breakthroughs. The threat to demand from additional stay-at-home measures is rippling across oil markets, pushing Brent contracts for prompt delivery back into a discount against later deliveries — a bearish pattern known as contango.
“The new strain of the virus is the straw that broke the camel’s back,” said Howie Lee, an economist at Oversea-Chinese Banking Corp.
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.
Diamondback Energy Inc. rounded off a tumultuous year for the U.S. shale industry with the acquisition of two rivals for about $1.4 billion, which will expand its position in the Permian Basin.
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