Oil slides as European lockdowns hurt outlook for demand recovery

A sticker reads crude oil on the side of a storage tank in the Permian Basin
FILE PHOTO: A sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. REUTERS/Angus Mordant

March 22, 2021

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices eased further on Monday after a broad sell-off last week, as new European coronavirus lockdowns made a quick demand recovery look less likely.

Brent crude was down 25 cents or 0.4% at $64.28 a barrel by 12:54 p.m. ET (1654 GMT) and U.S. oil for delivery in April fell 22 cents, or 0.4%, to $61.20 a barrel ahead of expiry.

The more active U.S. crude futures for delivery in May fell 18 cents or 0.3% to $61.26 a barrel.

Both contracts fell more than 6% last week after making steady gains for months on the back of output cuts and an expected demand recovery.

“Oil (had) its worst week this year as concerns grow over a flaring up in COVID-19 cases across Europe,” Dutch bank ING said in a note. “This comes at a time when there are clear signs of weakness in the physical oil market.”

Nearly a third of French people entered a month-long lockdown on Saturday while Germany plans to extend its lockdown into a fifth month, according to a draft proposal.

British Prime Minister Boris Johnson warned on Monday that the third wave of COVID-19 infections sweeping across Europe could be heading towards Britain.

“Vaccination campaigns haven’t been as fast as the market had hoped for and consequently this will have an effect on the oil demand recovery, which in turn hurts prices, cutting some growth potential,” said Louise Dickson, oil markets analyst at Rystad Energy.

While a broad economic recovery remains elusive, Saudi Aramco Chief Executive Amin Nasser was optimistic on longer-term prospects for the world’s top oil exporter. On Sunday, Nasser said global oil demand was on track to reach 99 million barrels per day (bpd) by the end of 2021.

“While I think demand is going to improve further as more economies ease travel restrictions in the coming months, the impact of this will be offset to some degree by rising oil supply,” Fawad Razaqzada, market analyst at ThinkMarkets said.

“The OPEC+ will be easing supply restrictions slowly, while U.S. shale production is likely to ramp up due to the attractive oil prices again. All told, I can’t see oil prices rising significantly further. I think Brent will struggle to stay above $70 and reckon WTI is going to average around $60 per barrel in 2021.”

The Organization of the Petroleum Exporting Countries (OPEC)and its allies, together known as OPEC+, have put in place unprecedented production cuts in a pact to balance global markets after demand plunged during the COVID-19 pandemic.

U.S. drillers, meanwhile, are starting to take advantage of the recent spike in prices, adding the most rigs since January in the week ending last Friday.

(Reporting by by Noah Browning and Aaron Sheldrick; Editing by David Gregorio and Lisa Shumaker)