Singapore — Oil edged lower in Asia after dropping the most since early November on Monday as a faster-spreading strain of the virus discovered in the UK raised the risk of more lockdowns and less global travel.
Futures in New York for February delivery traded near $48 a barrel after losing 2.6% Monday. Many countries have suspended travel with the UK, where more than 16-million people are now required to stay at home. New York governor Andrew Cuomo said he believes the new strain is already circulating in the city. A stronger dollar also reduced the appeal of oil that is priced in the currency.
The Covid-19 mutation is stoking concerns that more parts of the world may face renewed restrictions on movement, curbing a recovery in global energy demand. On the supply side, Russia said it intends to support a further increase in Organisation of the Petroleum Exporting Countries (Opec) production in February at the group’s meeting next month.
Crude has surged about a third since the end of October, in part due to a series of vaccine breakthroughs, but the likelihood of additional stay-at-home measures is threatening the rally and also weakening oil’s forward curve. Brent’s prompt timespread has moved back into contango, a bearish market structure where near-term prices are cheaper than later-dated ones.
“Though we’ve been on a strong upward trend in the last two months, a pullback in prices that we were expecting next year has already started,” said Howie Lee, an economist at Oversea-Chinese Banking. “The new strain of the virus is the straw that broke the camel’s back” and $50 to $52 a barrel is as high as Brent will go for now, he said.
Russia favours an extra 500,000 barrels a day of Opec output in February, said officials familiar with the country’s oil policy. That is the maximum allowed by the alliance’s new production-setting mechanism and the same level of increase set to take effect from next month.
Physical oil prices are also cooling as Asian refiners ease purchases after an earlier-than-usual buying spree. Abu Dhabi’s Murban crude was sold last week on the spot market below its official price for the first time since August, while differentials for Russia’s Espo and Urals have also slumped.
The US House of Representatives passed a $900bn Covid-19 relief plan that promises to boost energy demand in the US. The Senate is expected to vote soon and the White House has said President Donald Trump will sign it.