Oil Down Again As Covid Mutation Extends Demand Worries

Meanwhile, some analysts criticize world governments for overreacting to the mutation: File Image/Pixabay

Despite it not affecting the dissemination of the vaccines or their efficacy, a mutation of the Covid virus in Britain once again caused traders to worry about demand recovery and propel two key benchmarks downward for a second session on Tuesday, albeit less severely.

Brent declined 83 cents, or 1.6 percent, at $50.08 per barrel, while West Texas Intermediate fell 95 cents, or 2 percent, to settle at $47.02.

Stephen Innes, chief market strategist at Axi, said the oil market had been overbought and "The nightmare before Christmas scenario has set in, with a combination of the 'mutant virus' compounded by Brexit angst."

Innes was referring to doubts over whether UK prime minister Boris Johnson can secure a post-Brexit trade deal with the European Union.

Reuters followed through with a particularly downbeat story suggesting that hope for the end of the pandemic has been oversold and that the current gasoline refining margin of $9.52 per barrel "is lower than all but two of the last 10 years for this time of year."

The news agency warned that the current price declines could spur hedge funds to unload positions and that June barrels trading nearly 80 cents per barrel higher than December barrels "suggests oversupply could return by the end of next year."

But despite the media hoopla over the Covid mutation (which scientists insist isn't particularly remarkable and won't obstruct the herd immunity that the vaccines will achieve by summer of 2021) and much made of other countries closing travel to Britain, good news on Tuesday came in the form of France's Europe minister saying his country and the UK would announce a deal to restart freight by Wednesday.

Also, the U.S. Congress passed the second-biggest economic rescue package in American history as part of a massive $2.3-trillion year-end spending bill, which may support oil prices somewhat until the vaccines produce their desired effect.

Still, Tuesday demonstrated the hypersensitivity of the energy community during these Covid-crazed times, and Pavel Molchanov, energy research analyst at Raymond James & Associates Inc., also suggested that policy makers have overreacted to the Covid mutation: "This sudden, panicked action by government around the world points to the risk of even more widespread lockdowns and travel restrictions well into the new year."