Crude oil prices rise following sharp decline; COVID-19 woes still hold

Crude oil futures moved higher in morning European trade March 19 following a sharp decline that analysts said was a correction from recent optimism, while COVID-19 woes continued to cloud the market.

At 1100 GMT, ICE May Brent crude futures rose 43 cents/b at $63.71/b while the NYMEX April WTI futures contract was 53 cents/b higher at $60.53/b.

"Healthy correction or something more sinister? This question has hung over the oil market recently after losing value in the past few sessions," PVM analysts said in a note March 19. "Yesterday's bloodbath provided an empathic answer. Brent and WTI shed almost $5/bbl in what was their largest single-day loss since April 2020."

"There was no specific trigger for yesterday's sell-off. As we mentioned, prices had already been showing signs of weakness beforehand, so even minor news reports could be the straw that broke the camel's back," Carsten Fritsch of Commerzbank said in a note.

Fritsch said one key reason for the decline was the way the coronavirus pandemic is developing in Europe, with rising cases and sluggish vaccine rollouts causing concern over a prospective demand recovery.

"More of a concern to us is the situation in continental Europe, where the oil demand recovery is stalling as governments have extended mobility restrictions. That said, the faster vaccination pace in the UK and the US is promising; road activity in both countries and flight activity in the US are already improving," Giovanni Staunovo of UBS said in a note.

"Furthermore, the International Energy Agency made surprisingly pessimistic remarks about oil demand this week, even if this is not reflected in the IEA's actual forecasts. Another negative factor is the rise in US crude oil stocks," Fritsch added.

"There has also been a disconnect between the physical and the paper market for quite some time now, with the physical market weaker than the futures suggest," ING Economic analysts said in a note, "Chinese buying has been softer in recent weeks while growing Iranian flows have not helped. So there seems to be an element of the futures market falling back in line with the physical market."