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Crude slides more than 2% amid pandemic-fueled demand concerns

Highlights

UK, Europe implement new lockdowns

Congress to vote on US stimulus bill

Mnuchin: relief payments could arrive next week

New York — Crude futures settled lower Dec. 21 as the spread of a new COVID-19 strain in the UK prompted more lockdowns, pressuring demand outlooks.

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NYMEX January WTI settled $1.36 lower at $47.74/b and ICE February Brent finished down $1.35/b at $50.91/b, a slide of 2.3% and 2.8%, respectively, from Dec. 18.

The UK has introduced tougher restrictions in a bid to control the spread of the new strain called B.1.1.7. that is up to 70% more transmissible.

The new, faster spreading, virus has raised concerns that tighter restrictions will impact the oil demand recovery not just in the UK, but other European countries too, sources said. Denmark and the Netherlands have also reported cases of the new strain.

NYMEX January RBOB settled down 3.52 cents at $1.3604/gal and January ULSD was 3.56 cents lower at $1.4774/gal.

"A new faster strain of COVID-19 is triggering risk aversion across the board," OANDA senior market analyst Edward Moya said in a note. "The short-term crude demand outlook just got dealt a massive blow that will provide added uncertainty over the next couple of months."

Southeastern England and London have gone into a lockdown, dashing expectations that restrictions would be relaxed over the Christmas holidays, and many European countries have suspended travel with the UK, including Germany, France, Italy, Canada and Denmark.

The front-month ICE New York Harbor RBOB crack against Brent fell to around $5.85/b in afternoon trading, down from a two-month high $6.53/b on Dec. 18.

Front-month Brent and WTI had traded down as much as 5.8% and 4.8% from their Dec. 18 settles overnight but pared some of these losses later in the US session amid signs that Congress could swiftly pass a COVID-19 relief bill.

After months of deliberation, the US Congress agreed in principal over the weekend to a $900 billion economic relief package that includes direct payments and beefed-up unemployment benefits. The legislation is still being written with a vote expected later Dec. 21.

While the bill offers little direct relief to oil markets, economic stimulus is broadly supportive for oil demand. The deal was anticipated, however, and markets had largely priced-in the upside impact of the stimulus, sources said. Direct stimulus payments could be sent out as soon as next week, US Treasury Secretary Steven Mnuchin said Dec. 21, a sooner-than-expected timeline that arrested an early session slide in US equity markets and offered some support to commodities.

Apple Mobility data shows US driving activity was at a four-week high during the week ended Dec. 18 after climbing for a second straight week.

An uptick in gasoline demand would be in line with seasonal norms as US Energy Information Administration data shows that gasoline consumption typically climbs through mid-December in the run up to the end-of-year holidays, but then declines during the second half of the month. However, any uptick in driving activity is likely to leave gasoline demand well below normal as EIA data shows demand was more than 15% behind year-ago levels during the week ended Dec. 11.