Oil was on track to post its biggest weekly drop since August as Europe’s worsening Covid-19 crisis. EU countries are considering the prospect of renewed lockdowns just as key consuming nations look to add emergency supply to the market.
According to World Oil, the January futures contract in New York tumbled as much as 4.2% on Friday. Brent fell as much as 3.9%. The wave of infections in Europe is growing, once again raising the prospect of restrictions on mobility and a hit to oil demand. Austria imposed a lockdown while Germany introduced some restrictions. Both benchmarks are also set to decline for the fourth straight week.
The concerns come as the oil market fixates on the prospect of a combined release from strategic crude reserves by the U.S. and China. The latter said Thursday it was working on one, while the U.S. has repeatedly said the option to tap its Strategic Petroleum Reserves remains on the table.“It’s a potent one-two punch for the petroleum complex, when there is a looming supply burst combined with a hit to demand from the virus,” said John Kilduff, founding partner at Again Capital LLC.
After rising to the highest in seven years, oil has faltered over the past month even as the Organization of Petroleum Exporting Countries and its allies stuck with a cautious approach to restoring output. Alarmed by surging gasoline costs, U.S. President Joe Biden tried and failed to get the OPEC+ group to deliver more crude and then pivoted to a possible release from America’s Strategic Petroleum Reserve. A potential weakness in China’s economy has also contributed to the bearish factors. “The risk is real in Europe, especially if Austria’s move to lockdown has a domino effect across the continent,” said Louise Dickson, Rystad Energy’s senior oil markets analyst.
The rout also extended into refined product markets. Benchmark U.S. gasoline futures and the U.S. crack spread, a reflection of refining margins, slumped more than 3% each. Europe’s diesel crack also fell sharply.
Prices: Brent fell 3.2% to $78.66 a barrel in New York. WTI for January delivery lost 3.2% to $75.88. The December contract, which expires Friday, was at $76.24
The selloff slowed briefly after German foreign minister ruled out a general national lockdown. At the same time, the impact on currencies has pushed the dollar higher making commodities priced in the currency more expensive.
Some traders are also still placing bullish bets in the options markets, despite the recent selloff in prices. Contracts that would profit a buyer from a rally toward $200 traded on Thursday for the second consecutive week. While relatively cheap, such bets protect against a potential spike in prices.
