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Oil price slide extends as European lockdowns weigh on oil demand outlooks

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Oil price slide extends as European lockdowns weigh on oil demand outlooks

Highlights

Europe lockdowns spread, isolating UK

Brent curve slides further into contango

US dollar hits six-session high

New York — Oil futures settled lower Dec. 22 amid pandemic-dimmed demand outlooks prompted by the spread of more lockdowns across Europe.

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NYMEX February WTI settled 95 cents lower at $47.02/b and ICE February Brent declined 83 cents to settle at $50.08/b.

The UK's demand for road fuels and jet fuel is taking a fresh tumble after the country's efforts to contain a new strain of the coronavirus ripple through the European region.

A number of European countries, as well as countries further afield such as India and Russia, suspended all flights and closed their borders to the UK on Dec. 21 after the UK announced details of a new coronavirus strain spreading in the country. France has temporarily halted all UK arrivals and goods flows from ferries and trains.

The UK government on Dec. 20 imposed a tougher lockdown on 17 million people in the southeast of England amid concerns over the potentially more infectious COVID-19 variant.

Front-month Brent slid nearly 2% the day to settle at the lowest since Dec. 11, while WTI was down 1.5% and the lowest since Dec. 14.

NYMEX January RBOB settled down 2.09 cents at $1.3395/gal and January ULSD was 1.58 cents lower at $1.4616/gal.

"Crude prices declined as global lockdowns appear to be a harsh reality for the first quarter," OANDA senior market analyst Ed Moya said in a note. "The crude demand outlook over the next few months is bleak as US hospitalizations are at a record high, a new COVID strain could be spreading across Europe, and as skepticism grows over how quickly people will be willing to get vaccinated."

Brent forward structure slid deeper into contango, with the sixth-month contract settling at a 7 cent/b premium over front month, compared with a 3 cent/b discount on Dec. 21. The sixth-month contract had been in 45 cent/b backwardation to front month as recently as Dec. 10.

Europe's latest round of lockdowns had already removed some 900,000 b/d of road fuel demand last month, according to Rystad Energy. This year, European oil demand is forecast to decline by about 15%, or 1.8 million b/d.

"In the short term, we expect mobility restrictions in the US and Europe introduced in Q4 2020 to mostly spill over into Q1 2021, for which we expect oil demand to average 93.6 million b/d," Rystad said in a note.

Meanwhile, a strengthened US dollar added further pressure to oil prices. The ICE US Dollar Index climbed to a six-session high 90.57 in afternoon trading.