Oil Trades Near $52 With Virus Risks Weighing on Demand Outlook

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Jan 29 2021, 5:23 AMJan 29 2021, 8:03 AMJanuary 29 2021, 5:23 AMJanuary 29 2021, 8:03 AM

(Bloomberg) -- Oil was steady as the spread of a new Covid-19 variant and lockdowns raised concerns about the near-term recovery in fuel demand.

Futures in New York fluctuated near $52 a barrel after the biggest drop in almost a week on Thursday. The virus variant identified in South Africa has reached the U.S. just as Europe is set to tighten its rules on the export of vaccines. Stay-at-home orders to combat the spread of the outbreak have hit travel and crimped consumption of fuels from China to Los Angeles.

India’s demand for diesel, the country’s most-used fuel, is also struggling to shake off the pandemic’s crippling affects on its economy. The crawl back to pre-virus levels will be slow, with annual diesel consumption growth rates seen fully recovering in the year ended March 2022, said a senior oil executive.

Oil’s rally has faltered recently after surging since the end of October following a series of vaccine breakthroughs and a pledge by Saudi Arabia to deepen output cuts. A resurgent virus and recurring lockdowns from Asia to Europe are capping further price gains, while a stronger dollar is also reducing the appeal of commodities priced in the currency.

“As long as Europe’s vaccine shortage and the threat from more virulent strains continue to weigh on financial market sentiment, it’s hard to see crude breaking out to the upside,” said Vandana Hari, founder of Vanda Insights in Singapore. “The dollar support has also subsided.”

Prices
West Texas Intermediate for March delivery lost 1 cent to $52.33 a barrel on the New York Mercantile Exchange at 10:29 a.m. Singapore time after dropping 1% on Thursday. Futures are little changed for the week. Brent for March settlement, which expires on Friday, was up 21 cents to $55.74 on the ICE Futures Europe exchange after closing 0.5% lower in the previous session. Crude futures rose 0.6% to 335.4 yuan a barrel on the Shanghai International Energy Exchange after dropping 0.5% on Thursday.

Prices

West Texas Intermediate for March delivery lost 1 cent to $52.33 a barrel on the New York Mercantile Exchange at 10:29 a.m. Singapore time after dropping 1% on Thursday.
- Futures are little changed for the week.
Brent for March settlement, which expires on Friday, was up 21 cents to $55.74 on the ICE Futures Europe exchange after closing 0.5% lower in the previous session.
Crude futures rose 0.6% to 335.4 yuan a barrel on the Shanghai International Energy Exchange after dropping 0.5% on Thursday.

The oil futures curve, meanwhile, is looking more bullish. Prompt timespreads for the U.S. benchmark crude and global Brent have firmed recently in backwardation -- a market structure where near-dated contracts are more expensive than later-dated ones -- indicating shrinking supplies.

However, the market is potentially facing more supply from U.S. shale after the recent price rally. Explorers’ discipline won’t last with oil trading at more than $50 a barrel, a level at which many shale wells are profitable, said Charles Lemonides, the founder of Valueworks LLC, which has about $200 million in assets under management.

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