Oil posted its biggest weekly drop since August, as the worsening COVID-19 crisis in Europe renewed the prospect of lockdowns as major consuming countries seek to add an emergency supply to the market.
West Texas Intermediate (WTI) for December delivery fell 3.68% to US $ 75.94 a barrel, plunging 6% from the previous week.
Brent crude for January delivery slipped 2.89% to US $ 78.89 per barrel, posting a weekly decline of 4%.
The wave of infections in Europe is increasing, again raising fears of mobility restrictions that would weigh on oil demand. Austria imposed a lockdown, while Germany introduced some restrictions.
The concerns come as the oil market focuses on the prospect of releases of strategic crude reserves by the United States and China.
China said on Thursday it was working on one, while the United States has repeatedly said the option to tap its strategic oil reserves remains on the table.
“This is a powerful double blow to the oil complex, when there is an impending supply explosion combined with a demand blow from the virus,” said John Kilduff, founding partner of Again Capital LLC.
After hitting its highest level in seven years, oil has weakened over the past month, even as OPEC and its allies stuck with a cautious approach to restore production.
Alarmed by soaring gasoline prices, US President Joe Biden tried unsuccessfully to get the OPEC + group to deliver more crude, then turned to a possible release of the states strategic oil reserve -United.
The potential weakness of the Chinese economy also contributed to the downside factors.
Despite renewed demand fears, Friday’s sale may have been overstated, Goldman analysts, including Damien Courvalin and Callum Bruce, said.
High-frequency inventory data indicates an imbalance between supply and demand of around 2 million barrels per day over the past four weeks, Organization for Economic Co-operation and Development crude and the Atlantic Basin being at its lowest for seven years.
“This size of the deficit is in fact enough on its own to absorb the headwinds currently seen on the bullish oil case, with lower prices actually reducing the chances of a strategic release,” they said in a note.
Meanwhile, the so-called rapid spread of WTI has continued to shrink as supplies increase at the Cushing, Oklahoma hub. The January contract came in at a premium of US $ 0.17 to the February futures contracts, the lowest premium since the middle of last month.
The rout also extended to the markets for refined products. US benchmark gasoline and fuel oil crack spreads, reflecting refiner margins, fell more than 5% each, while European diesel crack also fell sharply.
Some traders still place bullish bets in the options markets. Contracts that would benefit a buyer from a rally to US $ 200 traded on Thursday for the second week. Although relatively inexpensive, these bets protect against a possible rise in prices.
Additional reports by staff writer
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