Oil steadies after strong rally as coronavirus weighs on demand

Flames are seen at a station in al-Zubair oil field, near Basra
FILE PHOTO: Flames are seen at a station in al-Zubair oil field, near Basra, Iraq April 21, 2020. REUTERS/Essam Al-Sudani

February 11, 2021

By Scott DiSavino

NEW YORK (Reuters) – Oil prices steadied on Thursday from a record streak of gains after both OPEC and the International Energy Agency (IEA) said renewed lockdowns and the emergence of new coronavirus variants reduced the prospect of a swift demand recovery.

Brent futures fell 7 cents, or 0.1%, to $61.40 a barrel by 11:21 a.m. EST (1621 GMT), while U.S. West Texas Intermediate (WTI) crude fell 17 cents, or 0.3%, to $58.51.

Previously, Brent rose for nine days in a row on Wednesday, tying the benchmark’s winning streak record last hit in January 2019. It was also hit in April and September of 2007.

WTI, meanwhile, rose for eight consecutive days on Wednesday, its longest winning streak since January 2019.

Despite the small price declines, both benchmarks remained in overbought territory with a Relative Strength Index (RSI) over 70 for an eighth day in a row.

“The rally that has been on ’til yesterday’s close may take some time to be repeated as finally the reality is being priced in, namely the slow pace of the oil demand recovery,” Rystad Energy’s head of oil markets Bjornar Tonhaugen said.

World oil demand in 2021 will rebound more slowly than previously thought, the Organization of the Petroleum Exporting Countries said, adding to a series of downgrades as the impact of the pandemic lingers. [nL1N2KH15U]

The IEA, meanwhile, said global oil supply was still outstripping demand due to persistent COVID-19 lockdowns and the spread of variants, but vaccines should help demand recover and soon enable producers to pump more.

The oil “complex (is) seeing downside pressures off several bearish aspects to the monthly IEA report,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, noting the small price decline came despite “stronger equities.”

The Dow hit a record high earlier on Thursday while the S&P 500 and the Nasdaq hovered near all-time highs as investors bet on more fiscal stimulus to ride out a coronavirus-driven recession with data showing a stalling recovery in the labor market.

Oil prices have gained in recent weeks as OPEC and its allies, a group known as OPEC+, reduced output and Saudi Arabia pledged additional voluntary cuts.

But the IEA said a rapid stock draw expected in the second half of the year could set the stage for OPEC+ to start unwinding the supply curbs.

Further price pressure came from an increase in oil output in Argentina.

The continuous struggle caused by the emerging variants of the virus and doubts about the efficacy of vaccines also dampened sentiment.

A British scientist said the coronavirus variant found in the British county of Kent is likely “to sweep the world” and could undermine the protection given by vaccines.

(Additional reporting by Bozorgmehr Sharafedin in London and Naveen Thukral in Singapore; Editing by Marguerita Choy and Barbara Lewis)