Oil fell near $52 a barrel as pessimism over demand spread with the coronavirus forcing more lockdowns, while a stronger dollar reduced the appeal of commodities priced in the currency.
Consumption remains precarious with parts of Hong Kong being locked down, some Shanghai residents banned from leaving the city and the U.K. prime minister signaling restrictions in the country may last for months. Traffic in New York reduced from a month earlier.
Despite the concerns over day-to-day demand, physical crude buying for the coming months has firmed in recent days. A flurry of purchases by Chinese, Indian and Thai refiners have supported prices while key swaps tied to the North Sea market are at the strongest level in 10 months. That’s keeping the futures curve in a bullish structure known as backwardation.
While crude has turned lower this week, its still trading near the highest level in almost a year. Investors have flocked back to commodities as frigid winter and hopes of a big economic stimulus from U.S. President Joe Biden have supported buying interest. Saudi Arabia’s unilateral output cut also eased oversupply concerns, helping reshape the oil futures curve.
“The reflation trade is not dead,” said Ole Hansen, head of commodities research at Saxo Bank. “But for now its pausing and that could leave many markets overexposed.”
- West Texas Intermediate for March delivery fell 2.3 per cent to $51.90 a barrel as of 10:42 a.m. London time
- Brent for March settlement lost 2.2 per cent to $54.89
The Biden administration’s initial steps –– including the suspension of the sale of oil and gas leases on federal land, a focus on fiscal spending and a likely delay in lifting sanctions on Iran –– may help tighten the oil market this year and next, Goldman Sachs Group Inc. said in a note. A speedier vaccine rollout could also boost jet fuel demand, it said.
Iran, meanwhile, has started ramping up its oil production and expects to reach pre-sanctions levels in one to two month, said Deputy Oil Minister Amir Hossein Zamaninia. The market will be able to accommodate the country’s maximum output of around 3.9 million to 4 million barrels a day, he said. But risks for any buyer remains as long as U.S. sanctions are in place.
© 2021 Bloomberg L.P.