By Adedapo Adesanya
Oil futures settled with a loss on Thursday as concerns over a slowdown in energy demand, due to the impact of the latest resurgence of coronavirus pandemic, undermined support provided from a bigger-than-expected drop in U.S. crude supplies.
As a result, the Brent crude futures lost 28 cents or 0.5 per cent to trade at $55.53 per barrel, while the West Texas Intermediate (WTI) crude futures dropped 52 cents or 0.98 per cent to $52.53 per barrel.
It has been observed that demand uncertainty continues to surround the market as slow travel activity in China, one of the world’s largest consumers of the commodity, is affecting the market due to a resurgence in COVID-19 cases.
Oil earlier found support in early Thursday as prices attempted to make gains from Wednesday when the Energy Information Administration (EIA) reported a 10 million-barrel decline in last week’s US crude inventories.
However, despite the substantial draw of crude supplies, this was largely ignored because it does not really reflect the true nature of the market which has a broader concern which continues to weigh on prices.
Most of these issues relate to demand weakness over the next quarter amid high numbers of new COVID-19 cases, and a vaccine rollout that is still in the early stages.
According to reports, production problems affecting AstraZeneca AZN and Pfizer PFE have slowed the rollout of vaccines in Europe. This is also further extended by prolonged lockdowns on the continent.
Also in China, authorities have taken steps to dissuade travel around the Lunar New Year, the Associated Press reported, noting that officials predict Chinese will make 1.7 billion trips during the travel rush, down 40 per cent from 2019. Travel was curtailed in 2020 due to the coronavirus.
The virus variant identified in South Africa has reached the US just as stay-at-home orders to combat the spread of the outbreak have also affected travel.
Oil’s recent rally has faltered recently after surging since the end of October following a series of vaccine breakthroughs and a pledge by Saudi Arabia to deepen output cuts.
A resurgent virus and recurring lockdowns from Asia to Europe are further cutting price gains, while a stronger dollar is also reducing the appeal of commodities priced in the currency.
On the supply side, the market is potentially facing more supply from US shale after the recent price rally as prices trading above $50 per barrel could bring more production into the fray.
