- WTI is sharply down on Friday and on course to lose over 5.0% this week.
- Prices have been battered by lockdown fears in Europe and concerns about a global crude oil reserve release.
Oil prices are down sharply on the final trading day of the week amid fears that European lockdowns will hit demand. Front-month futures for the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, dipped to fresh six-week lows under $76.00 at one point earlier in the session. WTI has since recovered back to the north of the $76.00 level, but that means it is still down by over $2.50 or more than 3.0% on the day. On the week, the losses are closer to $4.50 (over 5.0%).
Austria became the first western European nation to announce a full lockdown on Friday, amid surging Covid-19 infection and hospitalisation rates. The lockdown will apply to all citizens and last for 20 days, whereafter restrictions on the unvaccinated will continue. Other European nations have also been reimposing restrictions on everyday life and commerce (such as the Netherlands) and fears are growing that they could be next inline to enact broader lockdowns. Germany’s health minister on Friday said that the health situation in the country had become so grave that a full lockdown, including on the vaccinated, could not be ruled out. Widespread European lockdowns would deliver a significant blow to European fuel demand.
Elsewhere, crude oil prices have also this week been weighed amid concerns of an imminent crude oil reserve release from major oil-consuming nations. The US, in response to OPEC+’s refusal to increase output at a faster rate earlier in the month, has spent the last few days petitioning major Asian oil importers to release reserves. Authorities in China have already said they plan to do so. According to commodity strategists at Goldman Sachs, additional supplies of 100M barrels (i.e. from a global oil reserve release) has now been priced in by the market. This may limit the scope for further crude oil downside as a result of the reserve release story, which analysts at Goldman called a “short-term fix to a structural deficit”.
Finally, another theme that is likely to have contributed to the recent oil price downside is increasing chatter/concern that oil markets, currently in a large supply deficit, may soon be headed for a supply surplus. OPEC’s Secretary-General thinks markets will be in surplus by December, whilst the UAE’s oil minister saw this occurring in Q1 2022. US oil output is expected to continue to recover amid higher prices and smaller OPEC+ members who have struggled to keep up with rising output quotas are expected to catch up in the months ahead. Moreover, weaker European demand amid lockdowns over the winter months may also make the supply gap easier to close.
This article was originally published by Fxstreet.com.Read the original article here.
