Pandemic Panic Again Grips Traders, Oil Prices Plunge 6 Percent

But Kemp believes the pullbacks are only temporary: File Image/Pixabay

Crude traders on Tuesday once again succumbed to pandemic panic, driven by the perception that new pandemic curbs in Europe and blips in its vaccination rollout will harm demand recovery; as a result, oil prices plummeted by about 6 percent.

Brent crude futures settled down $3.83, or 5.9 percent, at $60.79 per barrel; West Texas Intermediate ended $3.80, or 6.2 percent, lower at $57.76 per barrel.

Bjornar Tonhaugen, head of oil markets at Rystad Energy, said, "The road to oil demand recovery appears to be full of obstacles as the world continues to fight the COVID-19 pandemic.," and he added that Tuesday's trading activity proved "that last week's correction was not deep enough and that the market had been trading lately with an excessively bullish sentiment, overlooking the pandemic's risk."

Completely ignored by traders was Israel announcing a fully open economy and Covid cases declining 40 days after exiting lockdown; the UK reporting its lowest number of Covid deaths since September 18; and news that one in four people have received the jab in the U.S., where Covid rates are also rapidly declining.

As if to assuage fears, Suhail al-Mazrouei, energy minister for the United Arab Emirates, said on Tuesday that the Organization of the Petroleum Exporting Countries (OPEC) and its allies will likely maintain its current output cuts: "I don't think there is an idea to pump a lot of oil, more than the market can handle."

Meanwhile, analysts in a Reuters poll predicted that U.S. crude inventories dropped slightly last week and gasoline stockpiles increased; the official numbers will be provided by the American Petroleum Institute later on Tuesday followed by government data on Wednesday morning.

For his part, John Kemp, commodities analyst for Reuters, suggested that oil's recent decline may have been inevitable: he wrote, "In retrospect, the futures market was already looking very overheated by the end of February and start of March, creating ideal conditions for a sharp retreat.

"By the final trading day of February, front-month prices had risen by 30 percent in two months, a rate of increase in the 98th percentile for all similar periods since the start of 1993."

But Kemp struck an optimistic tone by adding, "Provided front-month prices remain above about $55 and the six-month spread remains in backwardation, the recent fall in prices is likely to be seen as a temporary pull back in a longer-run cyclical upswing."