Oil dropped from a nine-month high on concerns that more pandemic lockdowns could slow a global rebound in fuel demand, even after data showed China’s economic recovery gathered pace last month.
Futures lost 0.7% and Asian stocks fell on Tuesday. New York is heading toward a second full lockdown after a surge in infections, with London being placed under England’s toughest coronavirus rules from Wednesday. The tighter restrictions come as the US starts delivering its first vaccine doses.
In China, which has controlled the spread of Covid-19, industrial output rose 7% in November from a year earlier and retail sales expanded. The nation also processed a record amount of crude on a daily basis last month as fuel consumption recovered, providing a rare bright spot for imports.
Optimism that fuel consumption will rebound following the rollout of vaccines has helped to drive oil about 30% higher since the end of October. The near term outlook, however, is looking tough, with OPEC cutting its projections for oil demand in the first quarter of 2021 as the group and its allies prepare to start returning some crude supply to the market from January.
“Crude may see occasional pullbacks, but I don’t see a major downward correction,” said Vandana Hari, founder of energy consultancy Vanda Insights in Singapore. “I expect the continued rollout of vaccines across the world to remain a major supportive factor over the coming weeks and months.”
In Asia, Japan suspended its domestic travel system for two weeks after infections rose, while new cases in South Korea jumped.
- West Texas Intermediate for January delivery lost 34 cents to $46.65 a barrel on the New York Mercantile Exchange at 8:05 a.m. London time after rising 0.9% on Monday.
- Futures closed at the highest since March 3.
- Brent for February settlement fell 0.8% to $49.90 on the ICE Futures Europe exchange after gaining 0.6% on Monday.
Oil’s forward curve weakened slightly this week. Brent’s prompt timespread was 1 cents a barrel in backwardation, where near-dated contracts are more expensive than later dated ones, compared with 13 cents on Thursday.
OPEC and its allies will meet on Jan. 4 to consider if they can press on with monthly increases in supply, although a report from the group on Monday suggested it can incrementally restore output over the next four months without tipping the market back into surplus. Producers also face heightened risk in the Middle East, after another tanker explosion near a Saudi Arabian port, which was described as a terrorist attack.