Oil logged its biggest weekly drop since August as Europe’s worsening COVID-19 crisis renewed the prospect of lockdowns just as key consuming nations look to add emergency supply to the market.
West Texas Intermediate (WTI) for December delivery lost 3.68 percent to US$75.94 a barrel, diving 6 percent from a week earlier.
Brent crude for January delivery skidded 2.89 percent to US$78.89 a barrel, posting a 4 percent weekly decline.
Photo: Reuters
The wave of infections in Europe is growing, once again raising the prospect of mobility restrictions that would hit oil demand. Austria imposed a lockdown, while Germany introduced some restrictions.
The concerns come as the oil market fixates on the prospect of releases from strategic crude reserves by the US and China.
China said on Thursday it was working on one, while the US has repeatedly said the option to tap its Strategic Petroleum Reserves remains on the table.
“It’s a potent one-two punch for the petroleum complex, when there is a looming supply burst combined with a hit to demand from the virus,” Again Capital LLC founding partner John Kilduff said.
After rising to its highest in seven years, oil has faltered over the past month, even as OPEC and its allies stuck with a cautious approach to restoring output.
Alarmed by surging gasoline costs, US President Joe Biden tried and failed to get the OPEC+ group to deliver more crude and then pivoted to a possible release from the US’ Strategic Petroleum Reserve.
Potential weakness in China’s economy has also contributed to the bearish factors.
Despite the renewed demand fears, Friday’s sell-off might have been overdone, said Goldman analysts, including Damien Courvalin and Callum Bruce.
High-frequency inventory data points to a supply-demand imbalance of about 2 million barrels per day over the past four weeks, with Organisation for Economic Co-operation and Development crude and Atlantic basin at seven-year lows.
“This magnitude of deficit is in fact on its own sufficient to absorb the current perceived headwinds to the oil bull thesis, with lower prices in fact reducing the odds of a strategic release,” they said in a note.
Meanwhile, the so-called prompt WTI spread continued to narrow as supplies grow at the Cushing, Oklahoma, hub. The January contract settled at a US$0.17 premium to February futures, the smallest premium since the middle of last month.
The rout also extended into refined product markets. Benchmark US gasoline and heating oil crack spreads, a reflection of refining margins, slumped more than 5 percent each, while Europe’s diesel crack also fell sharply.
Some traders were still placing bullish bets in the options markets. Contracts that would profit a buyer from a rally toward US$200 traded on Thursday for the second week. While relatively cheap, such bets protect against a potential spike in prices.
Additional reporting by staff writer
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