Oil Tanks as COVID-19 Resurgence Threatens Recovery

By Adedapo Adesanya

Oil prices fell about 3 per cent on Friday as surging COVID-19 cases in Europe threatened to slow the economic recovery.

The Brent crude futures lost $2.35 or 2.89 per cent to sell for $78.89 a barrel while the United States West Texas Intermediate (WTI) crude declined by $2.91 or 3.68 per cent to $76.10 per barrel.

Europe has continued to contend with rising COVID cases and is returning lockdowns and other restrictions, which the market fears would weigh on economies and oil demand.

On the continent, Austria announced on Friday it would impose a full lockdown starting on Monday while its immediate neighbour, Germany, the largest economy in Europe, faces a dramatic fourth wave of the virus.

In Ireland, the government also announced restrictions this week, with bars and nightclubs under curfew to close by midnight and people asked to work from home whenever possible.

In the world’s largest oil consumer, the US, cases are also on the rise in the Upper Midwest, an unprecedented situation.

Lockdowns measures as seen last year are trouble for the market and in the likelihood that the move extends beyond Austria to other parts of Europe or elsewhere, it could tip the market into oversupply.

Apart from fears of an economic and oil demand slowdown amid rising COVID cases in developed countries, the oil market continues to watch apprehensively the possibility of releases from strategic petroleum reserves not only from the United States but also from major consumers in Asia, including China, India, Japan, and South Korea.

While Japan and South Korea have said they won’t likely carry out the decision based on laws tied to them, analysts noted that if the US and China, the world’s two largest consumers do that, it could be very detrimental to the market.

Other analysts noted that releasing oil from the SPR likely wouldn’t have much of a long-term impact, but it can tell on it in the near term.

Yet again, the American government on Friday pressed the Organisation of the Petroleum Exporting Countries (OPEC) producer group to maintain adequate global supply.

The cartel, alongside Russia and other allies known collectively as OPEC+, has stuck to its policy of gradual oil output increases even as prices surged, saying it expects supply to outpace demand in the first months of 2022.