Oil Goes South as COVID-19 Concerns Weaken Optimism

By Adedapo Adesanya

Prices of oil went southwards on Friday as rising supplies from major producers and concerns over the current state of the COVID-19 pandemic continue to impact fuel demand.

The situation caused the value of the commodity to reach its worst weekly return in three weeks.

Yesterday, the Brent crude went down by 25 cents or 0.4 per cent to sell at $62.95 per barrel, while the West Texas Intermediate (WTI) crude lost 28 cents or 0.47 per cent to trade at $59.32 per barrel.

With the Organization of Petroleum Exporting Countries and its allies (OPEC+) planning to start raising output, markets are now focused on whether the demand recovery will be enough to absorb growing supplies.

Despite data showing an increase in consumption in major consuming countries like India and the US, rising virus cases and the possibility of stricter travel limits in Europe are depressing the forecast and putting pressure on crude.

Slow vaccination efforts are also compounding the problem as setbacks to get people to take vaccines is further extending the ease of restrictions globally.

Another factor that affected prices yesterday was the strengthening of the US Dollar in the currency exchange market. A stronger Dollar reduced the appeal of commodities priced in the currency. The stronger the greenback, the more expensive for holders of other currencies.

Analysts expect more problems as ongoing talks between Iran and world powers to renew a 2015 nuclear deal, which would set the stage for the Persian Gulf to increase supply continue to draw nearer. Negotiations are set to continue next week, though no direct contacts between Iranian and US envoys have yet been made.

Iran is currently not contributing much to the global markets but this could change soon with about 2 million barrels returning to the market if they succeed in reaching a compromise.

Both sides insist that the other one makes the first move: Iran wants the US to first lift sanctions before it stops enriching uranium, and the US wants Iran to first stop enriching uranium before it lifts the sanctions.

However, OPEC will have a problem on its hands, although it may not be as big as some would expect.

Iran is already exporting more oil than official numbers would suggest, mostly to China.

It could also affect US crude profits as Iran could start exporting to India after it stopped its purchases from Iran because of the US sanctions.