NEW YORK • Oil fell to less than US$48 a barrel in Asian trading – after posting a seventh weekly gain – on concern a Covid-19 mutation discovered in Britain could speed the virus’ transmission and lead to more lockdowns.
Futures in New York dropped nearly 3 per cent after closing at the highest level in almost 10 months last Friday.
Over 16 million Britons are now required to stay at home as a full lockdown came into force in London and the south-east of England, with some European countries limiting travel with Britain.
A stronger dollar also reduced the appeal of commodities that are priced in the currency, while a stimulus deal in the United States could not stem the slide.
Physical oil prices are also falling as Asian refiners ease purchases after an earlier-than-usual buying spree.
Abu Dhabi’s Murban crude was sold last week on the spot market below its official selling price for the first time since August, while differentials for Russia’s Espo have fallen from a six-month high.
Crude has rallied around 33 per cent since the end of October on a series of vaccine breakthroughs that have created expectations for a recovery in energy demand next year.
In the short term, however, prices are being buffeted by the fast-spreading virus leading to more stay-at-home orders.
“We have quite a bit of speculative money in oil at the moment, attracted by the more constructive outlook for 2021,” said Mr Warren Patterson, head of commodities strategy at ING Groep.
“However, if we start seeing the virus mutating, I imagine some of these speculators will become a bit more skittish.”
Oil is a vaccine trade right now with robust demand seen in the second half of next year as more people resume flying, Dr Jeff Currie, the head of commodities research at Goldman Sachs Group, said in a Bloomberg television interview last Friday. That is when Opec+ can return more supplies to the market, he said.
The alliance will react faster to changes and take a more hands-on approach with the oil market, thanks to its accelerated schedule of monthly meetings, Russia and Saudi Arabia, the group’s leaders, said over the weekend.
Oil’s futures curve is reflecting the conflicting long-and short-term signals. Brent’s prompt time spread is 4 US cents a barrel in contango, a bearish signal where near-dated contracts are cheaper than later-dated ones.
“Rising infection rates and the institution of lockdown measures are starting to have an impact on sentiment,” said CMC Markets Asia-Pacific chief market strategist Michael McCarthy. He added he was a “little surprised” the market was so negative given the progress on the US stimulus plan.