Oil fell for a second day as near-term demand risks due to a resurgent pandemic tempered optimism over the prospect of vaccine rollouts.
Futures dropped toward $45 a barrel in New York after closing down 1.1% on Monday. The U.S. is now seeing virus hospitalizations rise by almost 2,000 a day and is averaging around as many deaths as during Covid-19’s first surge in April. France is poised to miss a goal to end its lockdown next week. Dollar strength also reduced the appeal of oil, which is priced in the currency.
Investors had been hoping for progress on a $908 billion pandemic relief plan in the U.S., but lawmakers are set to postpone a Friday night deadline for passing a bill. Japan, meanwhile, announced a stimulus package of more than $700 billion, while China is opting to contain its record debt burden.
Oil is still near a nine-month high after surging last month amid optimism over vaccine breakthroughs and its trajectory over the next few months will depend on how quickly Covid-19 drugs can be deployed. Iran said it’s preparing to boost oil exports in a sign it expects the White House to ease some sanctions under a Joe Biden presidency, adding a potential supply risk to the market.
“The recent news on Iran as well as record virus cases in the U.S. are giving oil bulls a reason to square a portion of their risks,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “Still, the upward momentum coming from the continued vaccine optimism is still intact for now” and WTI will probably end the year at around $48 a barrel, he said.
While toughening restrictions to curb the spread of the virus remain a near-term headwind in Europe and the U.S., the recovery in Asia appears to be accelerating. Chinese exports jumped by the most since early 2018 last month. The strength in Asian demand led Saudi Arabia to raise oil pricing to the region and has also contributed to an increase in physical prices of North Sea crude.
Higher consumption is also draining oil stockpiled on ships at sea, with floating storage globally falling below 100 million barrels for the first time since April last week, according to data from Vortexa Ltd.
The oil futures curve, meanwhile, is signaling a slight increase in negative sentiment. Brent’s prompt timespread is 3 cents a barrel in contango — where near-dated prices are cheaper than later-dated ones — compared with 6 cents in backwardation at the end of last week.
– Bloomberg