Oil futures fell sharply Tuesday, with concerns that renewed lockdowns to combat the coronavirus pandemic in Europe would crimp energy demand helping to send U.S. prices below the key $ 60 mark.
“Optimism around a swift global economic recovery has recently been dampened by setbacks in vaccine rollouts in parts of Europe and Southern Asia,” said Christin Redmond, commodity analyst at Schneider Electric, in a market update.
Meanwhile, “U.S. refineries continue to struggle to come back online following the mid-February winter storm, which has resulted in several consecutive weeks of crude inventory builds.”
West Texas Intermediate crude for May delivery CL.1 CLK21 was down $ 2.67, or 4.3%, at $ 58.89 a barrel on the New York Mercantile Exchange. May Brent crude BRN00 BRNK21, the global benchmark, dropped $ 2.55, or 4%, to $ 62.07 a barrel on ICE Futures Europe.
A settlement around the current levels for WTI and Brent crude would be the lowest since Feb. 11, based on the front months, FactSet data show.
Germany, Europe’s largest economy, extended its lockdown measures by another month to April 18, and imposed several new restrictions in an effort to drive down the rate of coronavirus infections.
“A surge in virus cases in mainland Europe, where the rollout of vaccines has been painfully slow, has cast doubt on resumption of travel in the region…Among other things, this is hurting demand projections for crude oil and holidays,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a note.
While Europe is struggling with extended shutdowns, the opposite is happening in the U.S., noted Carsten Fritsch, analyst at Commerzbank, where a continued easing of restrictions, vaccine rollouts and the release of government financial aid checks are expected to boost demand for crude in the world’s largest oil-consuming countries.
The divergent trends were evident in the crack spreads — the differential between products produced from a barrel of crude and the crude itself — on either side of the Atlantic.
He noted that the gas oil/Brent crack spread in Europe remains very low, below $ 5 a barrel. By comparison, the comparable U.S. spread is seen around $ 15 a barrel.
Similarly, Brent futures have moved into contango, a situation in which nearby futures trade at a discount to contracts for later delivery and encourages putting crude into storage. WTI is in backwardation, with nearby futures trading at a premium to later-dated contracts.
Among other factors influencing trading, tensions between Saudi Arabia and Yemen rebels have provided some support for oil prices this month. On Monday, the Saudis proposed a cease-fire with Iran-aligned Houthis in Yemen.
Political tensions in the Middle East would normally raise oil prices, but “amidst present oversupply, those factors are not in play,” said Manish Raj, chief financial officer at Velandera Energy.
Raj said S&P Global reported that Saudi Arabia is drawing from its inventory to grow its exports, even though the country made voluntary production cuts.
“As a result of Saudi’s drawing from their inventory, the market remains well supplied,” he said, adding that when OPEC+ agreements call for production cuts, there are no restrictions on producers selling from their inventory.
The Saudi-led Organization of the Petroleum Exporting Countries, along with their allies — together known as OPEC+ — plan to meet next week. Traders are looking ahead to the meeting with the “hope that the group will roll over its production cuts amidst demand uncertainty,” Raj said.
Over in the U.S., weekly supply data will be released late Tuesday by the American Petroleum Institute late Tuesday, followed by official data from the Energy Information Administration Wednesday.
The EIA is expected to report domestic crude supplies down 300,000 barrels for the week ended March 19, according to IHS Markit, which also forecasts weekly supply increases of 1 million barrels for gasoline and 100,000 barrels for distillates.
On Nymex, April gasoline RBJ21,
April natural gas NGJ21,
