A new type of coronavirus spreading rapidly led to massive shutdowns in the UK and tighter restriction measures in Europe. Accordingly oil then fell nearly 3% on Monday, as fuel demand was concerned about a slower recovery.
Brent crude settled down $1.35, or 2.6%, at $50.91 a barrel, while West Texas Intermediate (WTI) crude for delivery in January ended the session $1.36, or 2.8%, lower at $47.74 ahead of expiry.
The more active February WTI contract fell $1.27, or 2.6%, to settle at $47.97 a barrel.
Both contracts had lost as much as $3 earlier in the session, their biggest daily drop in six months.
The strength of the US dollar has also affected the oil markets. A strong dollar makes dollar-denominated commodities such as crude oil more expensive for those holding other currencies.
Investors need to be mindful that the path to higher oil demand and prices will continue with ups and downs. Concerns about the mutated virus, new shutdowns and restrictions, especially travel restrictions, and the ensuing worries about the decline in demand continue to annoy investors.
Closures and travel restrictions will complicate OPEC + allies’ plans to gradually increase production. The monthly meetings will be very tense and oil prices will continue to fluctuate until the spread of the virus is contained in both Europe and the USA.
Brent climbed above $ 50 last week, for the first time since March, with optimism from COVID-19 vaccines. However, the new coronavirus strain that has also been detected in other countries, including Australia, the Netherlands and Italy, showed that the vaccine optimism that drove Brent to over $ 50 per barrel could fade in a short while.
By the way, the new strain of COVID-19, said to be up to 70% more contagious than the original, has renewed fears about the virus that killed nearly 1.7 million people worldwide.
Many countries closed their borders to the UK on Monday, causing travel chaos and increasing the likelihood of food shortages in the UK.
Russian Deputy Prime Minister Alexander Novak said the new strain had an impact on oil prices, adding that recovery of global oil markets was happening more slowly than previously expected and could take two to three years.
These negativities largely overshadowed the launch of a new vaccine in the US and the US congressional leaders’ deal on a $ 900 billion coronavirus aid package.
The approval by Europe’s medicines regulator puts the region on course to start inoculations within a week.