Crude oil futures plunge at start of new week amid COVID-19 surge

Crude oil futures started a new trading week sharply lower during mid-morning Asian trade Dec. 20 as bearish pressures continued to build with COVID-19 cases around the world still climbing and fresh lockdowns kicking in.

At 10:25 am Singapore time (0207 GMT), the ICE February Brent futures contract was down $1.63/b (2.22%) from the previous close at $71.89/b, while the NYMEX January light sweet crude contract similarly fell $1.79/b (2.52%) at $69.07/b.

"Asia markets are set for a negative opening... With the negative catalysts outweighing the positives thus far, sentiments may be under pressure to kickstart the new trading week," IG's market strategist Yeap Jun Rong said.

A fresh wave of bearish headlines greeted investors over the weekend in another blow to oil demand. The Netherlands on Dec. 19 entered into a strict lockdown with all non-essential services ordered to close until Jan 14. Media reports indicated deserted streets in the country's urban centers since the lockdown began.

Denmark and Ireland have also imposed new restrictions over the weekend, while other European countries were considering additional curbs. The UK's health minister Sajid Javid said Dec. 19 he was not ruling out further restrictions for the country before Christmas.

Prompt time spreads for ICE Brent were seen reaching fresh multi-month lows in a sign of weakening fundamentals. The M1-M2, or February-March, spread settled at flat Dec. 17, a low not seen since March 30, 2021.

While oil prices looked set to remain under heavy pressure in the near term, analysts painted a brighter outlook over the next two years.

US investment bank Goldman Sachs on Dec. 17 brought back the prospect of $100/b oil in 2023, saying that level was a possibility with oil demand reaching fresh record highs over 2022 and 2023.

Damien Courvalin, the bank's head of energy research, also predicted air travel restrictions would soften. "Until very recently, countries like Australia, New Zealand, and Singapore were very aggressive on limiting international transfer. That's easing," he said.

OANDA's senior market analyst Edward Moya in a note over the weekend said: "COVID news may continue to be a drag for oil prices for the rest of the year, but prospects of $100 oil at some point next year will lead to some buying on every critical support level."