Oil prices plunged by over 3% on December 21, 2021, due to a fast-spreading new COVID-19 strain shut down much of the United Kingdom. This new wave resulted in tighter restrictions in Europe fuelled by worries about a slower recovery in fuel demand.
Brent oil lost $1.74 or around 3.3% to trade at $50.52 a barrel by 0745 GMT after rising by 1.5% to reach its highest since March on Friday.
The U.S. West Texas Intermediate (WTI) crude was down $1.66, or 3.4%, to trade at $47.44 a barrel after also gaining 1.5% on Friday to reach its highest since February. Today’s drops come after seven weeks of gains in oil prices amid increasing optimism arising from the rollout of COVID-19 vaccines. The chief analyst at Fujitomi Co. commodities broker, Kazuhiko Saito, said:
“The oil market has been on a bull trend in the past month or so, ignoring negative factors, amid optimism that a widening vaccine rollout would revive global growth. But investors’ rosy expectations for 2021 have suddenly vanished due to a new variant of the virus.”
Money managers had in the process raised their net long US crude futures and options positions in London and New York by 2,046 contracts to reach 321,332 in the week that ended on December 15. The data was made available by the U.S. Commodity Futures Trading Commission (CFTC).
The chief analyst at Sunward Trading, Chiyoki Chen, said:
“A tougher lockdown in Britain to fight a new strain of coronavirus and travel restrictions in other European countries led funds to unwind their long positions.”
Worries over dragging Brexit talks are also denting market sentiment. Chen highlighted:
“Brent may fall below $50 a barrel and WTI may drop below $45 this week as investors want to adjust positions ahead of Christmas holidays.”
UK Government Response
An emergency response meeting on December 21 will be chaired by British Prime Minister Boris Johnson to discuss international travel. The meeting will also discuss the flow of freight in and out of Britain as coronavirus cases surged by a record high for one day. Senior officials say that the new virus strain is up to 70% more transmissible than the original.
Johnson will also use that opportunity to hammer out the ultimate accord on Brexit. All that negative sentiment overshadowed a weekend deal among the United States congressional leaders for a $900B COVID aid package.
Compounding on the pressure, the US oil and gas rig count, a dependable early indicator of future output, surged by eight to reach 346 in the week to December 18. That is the highest level since May according to Baker Hughes. Baker explained that producers keep returning to the well pad with crude prices trading above $45 per barrel since late last month.
Alexander Novak, Russian Deputy Prime Minister, said on December 19 that global oil demand was still between 6-7 million barrels per day below the pre-crisis levels.