Oil prices have been hit by the new covid19 strain as investors worry about a slower recovery than expected. In the meantime, more countries close their borders to England and impose tighter restrictions.
Although, Brent has remained at the $50 per barrel mark; on Monday Brent crude was down $2,23 or 4,3% to $50,3 per barrel; while the West Texas Intermediate (WTI) fell $2,21 or 4,5% to $46,89 per barrel.
As we reported previously, oil prices were at six-week-straight high record, as the OPEC agreement on cuts production, and the vaccine rollout boosted investors’ hopes for a demand recovery. They were focusing more on the recover potential and not as much on the recovery warns that the industry gave.
OPEC confirmed that demand for oil all over the world was going to start in at least the second half of 2021, while the Energy Information Administration reported a sharp increase in U.S. crude inventories, meaning the demand wasn’t at all at pre-pandemic levels.
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New covid19 strain, 70% more transmissible
Now, reports of a new covid19 strain, 70% more transmissible than the previous one, has led to chaos and more strict confinement measures in England, Italy, and other countries. Quoted by Reuters, Giovanni Staunovo, UBS oil analyst, said about the matter:
“Reports of a new strain of the coronavirus has weighed on risk sentiment and oil. New mobility restrictions across Europe are also not helping as European oil demand will suffer. Investors need to be mindful that the road to higher oil demand and prices will remain bumpy.”
On Monday, the closure of countries at their Britain-adjacent borders have raised fears for food shortages. Although the vaccine is already there, distribution issues and rollout capacity remain short in the face of this new strain.
For analyst Louise Dickson, from Rystad Energy, “The new strain of the coronavirus in the UK has shown us that the vaccine optimism holding Brent above $50 per barrel could be deflated in a fleeting moment.” The new strain has already been detected in countries like Australia, the Netherlands and Italy.