Oil Slides 4% as Demand Worries Outweigh Supply Disruptions

March 26, 2021
oil demand worries

By Adedapo Adesanya

Oil prices shed most of their recent gains on Thursday as a new round of coronavirus restrictions in Europe revived demand worries, overlooking efforts to move a stranded container ship blocking crude oil carriers in the Suez Canal.

As a result, the Brent crude fell by 4.01 per cent or $2.58 to trade at $61.83 per barrel while the West Texas Intermediate (WTI) slid by 4.28 per cent or $2.62 to sell at $58.56 per barrel.

Both contracts jumped about 5 per cent on Wednesday after a large ship called the EverGreen ran aground in the Suez Canal, one of the world’s most important oil shipping routes.

The Suez Canal Authority said on Thursday it had suspended movement temporarily while eight tugs work to free the vessel. The technical manager of the ship said another effort to re-float the vessel will be undertaken and this might take weeks.

The impact of the Suez Canal blockade on oil prices is also limited as the destination of most oil tankers is Europe, but European demand is currently weak due to a new round of lockdowns. Europe is continuing to struggle with the virus amid the third wave of COVID-19 infections and ramping up of lockdown measures.

This is worsened by its slow vaccination rollout affected by manufacturing issues and supply snags, to the extent that European Union leaders may introduce vaccine export bans.

It comes as a handful of countries re-introduce lockdowns to curb the third wave of infections, with France, Poland and Ukraine all implementing stricter measures.

The black gold also took a beating as the American Dollar index rose to a four-month high against its rivals, making crude more expensive for holders of other currencies.

The global oil market was also under pressure as producers faced difficulties selling to Asia, especially China. According to industry sources, Asian buyers instead took cheaper oil from storage while refinery maintenance has reduced demand.

Given the persistent demand worries and falling prices, expectations are growing that the Organization of Petroleum Exporting Countries and allies, together called OPEC+, will rollover their current supply curbs into May at a meeting scheduled for April 1.

On Wednesday, the US Energy Information Administration (EIA) reported a 1.9 million-barrel increase in crude supplies while the American Petroleum Institute (API) reported a 2.9 million-barrel increase in crude supplies.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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