Crude oil futures dip as most of California enters lockdown

Singapore — 0302 GMT: Crude oil futures ticked down during midmorning trading in Asia Dec. 7 as the rally spurred by OPEC+ partially extending production quotas tapered off after most of California entered into a lockdown.

At 11:02 am Singapore time (0302 GMT), the ICE February Brent contract was down 18 cents/b (0.37%) from the Dec. 4 settle at $49.07/b while the NYMEX January light sweet crude contract was down 18 cents/b (0.39%) at $46.08/b. Both markers rose 2.07% and 1.60%, respectively, in the week ended Dec. 5, with the rally driven by the OPEC+ easing production quotas Dec. 3 by 500,000 b/d in January 2021.

The alliance will set output levels every month, aiming to release crude gradually onto the market without tipping it into a supply glut during an uncertain recovery from the pandemic, ministers said Dec. 3.

However, the sentiment soured Dec. 7 after the reimposition of lockdown measures in Southern California and large parts of the Central Valley on Dec. 5. The restrictions came after intensive care capacity in these regions fell below a 15% threshold, and are expected to remain in place for at least three weeks, according to media reports.

"Some of the shine is coming off the OPEC rally as the reality of Xmas lite sets in with the bulk of Californians, one of the US's biggest road fuel demand states, are set to enter wide-sweeping new virus lockdowns," said Stephen Innes, chief global market strategist at AxiTrader, in a Dec. 7 note.

"Oil being a prompt contract, it does not have the luxury to look through "Grinchy" holiday season-imposed lockdowns, like other forward-looking assets," he added.

Meanwhile, oil prices could also be influenced by news about the US stimulus package, seen by the market as key to injecting life into the ailing US economic picture and shoring up demand for oil.

The increasing agreement in the political sphere that further fiscal response is needed for a US economic recovery portends well for ratification of a US stimulus bill.

"The prospect for another US COVID-19 pandemic stimulus package before end-2020 rose substantially as senior Republican lawmakers warmed to the US$908bn proposal put forth by a bipartisan group of lawmakers as a basis for a deal," UOB analysts said in a Dec. 7 note.

"House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer have already endorsed using the bipartisan proposal as the basis for negotiations while several Republican senators, including South Carolina's Lindsey Graham, a close ally of Trump, said that it contained elements for an agreement," they added.