By Adedapo Adesanya
Crude oil prices continued to trade lower on Tuesday on the back of the renewed concerns about global oil demand due to flight bans and lockdowns in Europe.
At the market yesterday, these concerns dampened the Brent crude and caused it to further drop 92 cents or 1.81 per cent to sell at $49.99 per barrel. On its part, the West Texas Intermediate (WTI) lost $1.05 or 2.19 per cent to trade at $46.92 per barrel.
There have been demand fears lately in the oil market, especially because of the new strain of COVID-19 in the United Kingdom, causing observers to question the future prospects of an oil consumption recovery despite the news of vaccines for the virus.
The new coronavirus strain currently being referred to as SARS-CoV-2 VUI 202012/01, which was first detected in the United Kingdom, has already been circulating around the world and due to its high transmissibility, this has spurred many countries to place travel bans in place.
It became prevalent across southeast England in November and reportedly accounts for 60 per cent of recent infections in London. The new VUI-202012/01 variant has been identified in several countries including Australia, Denmark, Italy, Iceland and the Netherlands.
The almost complete travel isolation of the UK from other countries, as a result of the new coronavirus strain, continues to weigh on the oil market. Other major economies in Europe, including Germany and Italy, will be on nationwide lockdowns for Christmas.
Due to the new strain of the virus, dozens of countries, including the UK’s closest neighbours such as France, have suspended flights from Britain, while France has even closed all its borders with the UK for two days. The European Union and the European Commission are looking at ways to remove the isolation of the UK, with the commission recommending EU member states lift restrictions on essential travel.
This latest development would impact oil demand just as the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) is set to ease their collective cut by 500,000 barrels per day as of January.
Despite renewed fears about oil demand due to the new coronavirus strain, the leader of the non-OPEC group in the OPEC+ pact, Russia, is reportedly still in favour of another 500,000 barrels per day increase in the alliance’s oil production from February.
Also, the market will receive fresh support as the United States Congress finally passed the $900 billion COVID relief package that promises to accelerate vaccine distribution and deliver much-needed aid to small businesses hit hard by the pandemic and also help fix unemployment.
The White House has said that President Donald Trump will sign the legislation once it reaches his desk.
It will include direct payments of up to $600 per adult, enhanced jobless benefits of $300 per week, roughly $284 billion in Paycheck Protection Program loans, $25 billion in rental assistance, an extension of the eviction moratorium and $82 billion for schools and colleges.
This could prove to be influential to the market as it would boost consumption power but the impacting factor is restrictive movements brought about by the coronavirus, which affects demand.
