Oil futures on Tuesday added to their slide as worries about energy demand persisted following new travel bans and lockdowns in Europe and the U.S. to combat the COVID-19 pandemic, even though a vaccine rollout has begun.
France’s border with the U.K. remained closed to trade and travel and other European countries are banning travel from the U.K. amid reports of a new strain coronavirus.
Nearly 40 countries in Europe, Asia, South America and the Middle East have restricted travel from the U.K., and countries, including Australia have also reported news of a fast-spreading variant of the disease.
Saudi Arabia also temporarily suspended all international passenger flights for citizens and residents over fears about the fast-spreading new variant of the coronavirus.
The kingdom’s interior ministry says the one-week flight ban may be extended “until medical information about the nature of this virus becomes clear.”
Medical professionals have said that vaccines from Pfizer and BioNTech and those from Moderna should work on the mutations of the coronavirus.
Meanwhile in the U.S., a roughly $900 billion coronavirus relief package and $1.4 trillion bill funding government operations through September 2021 was passed by Congress late Monday. Investors have long wagered that such a deal would support the economy and thereby prop up energy demand. .
“The travel restrictions that the new strain of Covid-19 has triggered are indeed affecting some oil demand but the news of a final US stimulus agreement are also too significant to brush off,” wrote Rystad Energy analyst Louise Dickson in a Tuesday research note.
“The price reaction may be triggered by the new Covid-19 strain but the full effect of the decline may be more a result of the market’s realization that despite the vaccine breakthrough, there is still some uncertainty out there, a thought largely ignored in this month’s price rally,” the Rystad analyst wrote.
Also weighing on oil are Bloomberg reports, citing people familiar, that Russia, one of the world’s biggest producers of crude, favors a 500,000 [barrel per day] increase in production by the Organization of the Petroleum Exporting Countries and its allies, in a group known as OPEC+.
Russia advocates raising the output for OPEC+ by 500,000 barrels a day in February, matching a hike already agreed upon for next month, according to the report.
Against that backdrop, West Texas Intermediate crude for January delivery were trading 47 cents, or 1%, lower at $47.50 a barrel, after the contract closed 2.6% lower on Monday. The January contract expired at the end of Monday’s session.
February Brent crude meanwhile, shed 43 cents, or 0.8%, to trade at $50.48 a barrel on ICE Futures Europe, following a 2.6% decline a day ago.