Oil prices were sharply knocked down Thursday, hurt in part by a dimmer outlook from Europe as the region battles rising COVID-19 cases counts and a sluggish rollout of vaccinations to curb the spread of the disease.
Brent oil, the international benchmark, extended its run of losses into a fifth session and West Texas Intermediate crude was in its sixth consecutive session in the red.
“Europe is struggling with COVID. Their pickup in crude demand is likely to lag the Americas and it’s probably going to really threaten a lot of hopes that we were going to see a big pickup this summer,” Ed Moya, senior market analyst at Oanda, told Insider on Thursday.
Brent oil fell 8% to $62.52 barrel and WTI fell by 8.3% to $59.25 per barrel.
Several European countries were recording a rise in coronavirus infections, prompting France on Thursday to declare new lockdown measures in Paris while Italy this week imposed movement restrictions.
Oil prices found no relief Thursday from the European Medicines Agency’s ruling that AstraZeneca’s coronavirus vaccine developed with Oxford University is safe to use. The review came after several European countries suspended the vaccine’s use following reports of blood clots in some people who had been injected with the formula.
Meanwhile, oil was under pressure in the wake of the Federal Reserve’s policy meeting on Wednesday during which it upgraded its growth projections for the US economy.
“You have a stronger dollar which has emerged from the surge in Treasury yields, which is also weighing on commodities as well,” said Moya. The US Dollar Index rose 0.5% to 91.87.
“This is a risk-off moment with some of the cyclical trades,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. Oil prices will likely “test the lower end of this trading range because we don’t have a whole global reopening. We’re behind on vaccines outside the U.S., the U.K., and Israel, and parts of Europe are having to shut back down.”
Oil’s move lower may also be linked to some unwinding of long positions from commodity trading advisors as daily price gains or losses of more than 3% can often trigger this account group to quickly unload.
Beyond headline prices, crude’s closest time spreads are reflecting the fragile near-term outlook. WTI’s front-month contract is trading at a discount again to the following month, while Brent’s backwardation — a bullish structure signaling tighter supplies — is weakening.
“The sentiment has changed,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. “Short-term supply and demand considerations are temporarily casting a shadow over the bright future that is likely to arrive in the third quarter of the year.”
The global recovery from the pandemic remains uneven. In Brazil, Covid-19 cases are expanding by record numbers, crimping activity, while in the U.K., delayed shipments of AstraZeneca Plc’s vaccine will cut supply this month. Meanwhile, the European Union’s drug regulator concluded that the benefits from AstraZeneca’s vaccine outweigh the risks after several of Europe’s largest countries suspended the use of the shots this month because of concerns around blood clots.
“Demand hasn’t gotten as far back to normal as we expected, with the vaccine news out of Europe definitely concerning in terms of short-term demand,” said Michael Lynch, president of Strategic Energy & Economic Research. “That’s making people think that the time for $70 Brent has not yet come.”
Brent Short (Sell)
ENTER AT: 62.24