Virus jitters offset by US stimulus keep oil level

Singapore — Oil steadied in Asian trading — after posting its first weekly loss since October — as pessimism over a new strain of Covid-19 was balanced by the passage of a US stimulus bill into law.

Futures in New York traded near $48 a barrel after sliding 1.8% last week. Tougher restrictions were extended to much of England to try to stem the virus mutation, while China suspended passenger flights to the UK. US officials, meanwhile, warned of a post-Christmas surge of infections.

Crude pared earlier losses after President Donald Trump signed the long-awaited bill containing $900bn of virus relief that is expected to boost energy demand in the world’s largest economy. Trump had previously expressed his displeasure with the bill, which Congress approved last week.

Oil is finishing the year on a sombre note as the short-term demand risk of more travel restrictions outweighs optimism over vaccine rollouts, which are already under way and will eventually boost energy demand. The Opec+ alliance will also return 500,000 barrels a day of output to the market from January.

“I see a very quiet market from now until the end of the year, but the direction for the next couple of days will be downward” due to the new virus strain, said Howie Lee, an economist at Oversea-Chinese Banking. “Since it’s nearing the year end, traders are just happy to close their books.”

Crude’s futures curve is reflecting the pessimism. Brent’s prompt timespread is 6c a barrel in contango, a bearish market structure where near-term prices are cheaper than later-dated ones. The spread was as much as 13c in backwardation earlier this month.

Japanese industrial production missed analyst expectations to come in unchanged last month from October, more evidence that the resurgent virus is stalling the economic recovery in some parts of Asia.

Trump, meanwhile, raised geopolitical tensions in the Middle East, accusing Iran of being responsible for a rocket attack near the US embassy in Baghdad on Sunday. The Islamic Republic’s foreign ministry said the claims were baseless. The country’s oil minister said this month that Iran is planning to double its production in 2021, which will clash with Opec+ efforts to gradually increase supply without flooding the market.