Oil futures sink over 2% as coronavirus cases flare up in Asia, Europe

Oil futures sink over 2% as coronavirus cases flare up in Asia, Europe

Oil futures traded sharply lower on Friday amid talk of expanded lockdown measures in Europe and reports of a resurgence of COVID-19 infections in China and Southeast Asia, a development that could dent oil demand in the near term, experts said.

On Friday, West Texas Intermediate crude for March delivery CL. 1 CLH21was trading $1.32, or 2.5%, lower at $51.82 a barrel on the New York Mercantile Exchange, after a 0.3% decline on Thursday. Meanwhile, March Brent crude BRN00 BRNH21 was shedding $1.28, or 2.3%, at $54.82 a barrel, following a rise of less than 0.1% for the global benchmark in the previous session.

COVID-19 cases have reappeared in China with 103 new infections, marking an 11th day with more than 100 confirmed infections, forcing a lockdown for the first time in months. Meanwhile, Hong Kong on Friday announced its first lockdown, a move reminiscent of the measures used to combat the outbreak of SARs 20 years ago.

Concerns about a fresh outbreak in the region are amplified since it comes just ahead of Lunar New Year festivities, a popular holiday in Asia.

“A rise in Chinese infection numbers is of particular concern, not only because China is among the world’s largest oil consumers and the market that helped oil prices recover the most, but also as the Lunar New Year holiday period is approaching,” wrote Louise Dickson, oil markets analyst at Rystad Energy in a daily note.

“The holiday is traditionally a time of heavy road fuel consumption in China but the country is now introducing restrictions and is advising people to not travel, which will definitely be a slap to oil demand,” the analyst noted.

On top of concerns around Asia, the European Central Bank on Thursday warned that the eurozone could be headed for a double-dip recession if lockdowns persist, which could hurt energy uptake.

Oil futures ended on a mixed note on Thursday as data from the American Petroleum Institute showed an unexpected rise in U.S. crude inventories, ahead of the U.S. government’s supply report due Friday.

The Energy Information Administration will release its weekly U.S. data on oil and petroleum product supplies on Friday at 11 a.m. Eastern, attributing the delay to Monday’s Martin Luther King, Jr. holiday, as well as Wednesday’s U.S. presidential inauguration. The EIA also delayed its weekly release for natural-gas supplies to Friday at 10:30 a.m. Eastern.

Energy traders are also trying to parse the Biden administration environmental policies and assess its impact on the oil complex. Biden is expected to revoke a presidential permit for the Keystone XL oil pipeline, a 1,700-mile pipeline was planned to carry roughly 800,000 barrels of oil a day from Alberta to the Texas Gulf Coast. 

See: Here’s what Biden’s early actions mean for oil’s outlook

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