Renewed concerns over flaring up of COVID-19 cases in Europe have reversed fortunes in crude oil industry, sending oil prices on another round of descent. Both the WTI and Brent crude fell by over four per cent on Tuesday.
New or extended lockdowns in Europe, including in Italy, France, and Germany, prompted concerns about mobility and oil demand in the next few weeks, while the vaccination programs in many European countries are lagging behind the United States and the UK, for example, in terms of vaccination rates.
Europe’s biggest economy, Germany, is extending its lockdown through April 18, with a stricter lockdown for Easter to “break the exponential growth of the third wave,” Chancellor Angela Merkel said today.
Money managers have also started to pull money off crude long positions, further weighing on oil prices.
Dutch bank, ING said, “this comes at a time when there are clear signs of weakness in the physical market”,
Oil prices resumed their slide on Tuesday after Covid-related restrictions in Europe multiplied. The price plunge was likely magnified by the rush by net-long investors to exit their positions. Long bets on futures had begun to look overstretched. WTI crashed as low as $58.60 on Tuesday morning.
Analysts say the oil prices decline is as a result of weighed down by concerns about immediate demand and speculators liquidating long positions.
The nearest Brent Crude contract for May was trading at a discount to the next-month contract, the June contract, for the first time since January this year. The contango, the structure in which the front-month price is lower than prices in future months, points to an oversupply on the market. Only the nearest contract was in contango, but the weakness in the backwardation in recent days has exacerbated concerns over near-term oil demand.