Oil falls $3 as new virus strain prompts demand worries

Oil prices tumbled by more than $3 on Monday before trimming losses as a fast-spreading new coronavirus strain that has shut down much of Britain and led to tighter restrictions in Europe sparked worries about a slower recovery in fuel demand.

Brent crude was down $1.83, or 3.5%, to $50.43 a barrel by 1209 GMT while US West Texas Intermediate (WTI) crude was down $1.70, or 3.5%, to $47.40 a barrel. Both contracts fell more than $3 earlier in the session.

“Reports of a new strain of the coronavirus have weighed on risk sentiment and oil. New mobility restrictions across Europe are also not helping as European oil demand will suffer,” said UBS oil analyst Giovanni Staunovo.

“Investors need to be mindful that the road to higher oil demand and prices will remain bumpy,” he added.

Brent climbed above $50 last week for the first time since March amid optimism stemming from the rollout of Covid-19 vaccines.

But a new Covid-19 strain, said to be up to 70% more transmissible than the original, has led European countries and Canada to shut their borders with the UK. Hong Kong and India said they would suspend flights from Britain.

The new virus strain has already been detected in Australia, the Netherlands and Italy.

“The message is clear: oil prices are still very much and will continue to be at the mercy of the pandemic,” said Stephen Brennock of oil broker PVM.

The negative sentiment completely overshadowed a weekend deal among US congressional leaders for a $900 billion coronavirus aid package, and the rollout of a new vaccine in the United States on Saturday.

Adding to pressure, the US oil and gas rig count, an early indicator of future output, rose by eight to 346 in the week to December 18, the highest since May, Baker Hughes said, reflecting crude prices that have traded above $45 a barrel since late November.