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Oil Struggling to Regain Mojo After Worst Week Since October

Commodities1 hour ago (Mar 22, 2021 01:16PM ET)

(C) Reuters.

By Barani Krishnan – Oil is struggling to regain its strong upside of the past four months as new Covid-19 lockdown in Europe — especially one extended to April 18 in Germany, the bloc’s largest economy — weighed on crude prices trying to recover from the worst week since the end of October.

New York-traded West Texas Intermediate, the benchmark for U.S. crude, was down 15 cents, or 0.2%, at $61.29 per barrel by 1:08 PM ET (17:08 GMT) after moving in a $1.67-band as it seesawed between red and green territory.

London-traded Brent, the global benchmark for crude, was off 25 cents, or 0.4%, at $64.28, after a session high at $65.03 and low of $63.45.

WTI fell 6.4% last week while Brent lost 6.8%, marking their biggest slump since the week ended Oct. 23.

Crude prices fell after a meeting chaired on Monday by German Chancellor Angela Merkel decided to tighten Covid-19 restrictions, backtracking on a recent easing, as the infection rate in Europe’s largest economy rose to above 100 per 100,000 inhabitants.

Under a draft government plan debated at the meeting, lockdowns would be extended till 18 April, varying in their intensity according to region and impact.

Covid-19 infections in neighbouring Poland are also more than three times higher to Germany’s, while Italy — Europe’s No. 1 hotspot for the virus during last year’s outbreak — was girding for a nationwide lockdown during the Easter weekend from April 3 through April 5.

Fawad Razaqzada, analyst at London’s ThinkMarkets said oil has rebounded from an unprecedented low base — particularly from the point of WTI’s negative pricing of minus $40 per barrel last year — and historically high OPEC cuts, backed by optimism now about economic reopenings on Covid-19 vaccinations and the promise of greater travel that could stir pre-pandemic fuel demand.

Yet crude prices could continue to struggle as U.S. supply might grow faster than demand, he said.

“All told, I can’t see oil prices rising significantly further. I think Brent will struggle to stay above $70 and reckon WTI is going to average around $60 per barrel in 2021,” he said.

“The downward momentum may have already started following last week’s sell-off. While I think demand is going to improve further as more economies ease travel restrictions in the coming months, the impact of this will be offset to some degree by rising oil supply. OPEC+ will be easing supply restrictions slowly, while U.S. shale production is likely to ramp up due to the attractive oil prices again.”

Last week’s near 7% tumble was the first meaningful drop for crude prices after a near five-month rally with barely any stops. The run-up was driven by OPEC+ production cuts, the promise of economic reopenings from Covid-19 closures and a blockbuster U.S. pandemic relief that was underway.

But virtually overlooked in that time was the anemic demand for jet and other transportation fuels as global travel remained heavily curtailed by the pandemic. Europe’s constant struggle with new outbreaks of infections; its alarmingly slow pace of vaccinations; and fresh lockdowns on the bloc were also treated with little seriousness.

On Thursday, however, those concerns came to a head, exacerbated by the 13-month highs in bond yields benchmarked to the U.S. 10-year Treasury note and the spike in the Dollar Index to near 92. WTI slumped to $58.20 while Brent fell to $61.45, both a five-week low.

Data on Friday also showed that U.S. drillers were also starting to take advantage of an earlier spike in prices on optimism about returning demand, adding the most rigs for extracting oil since January in the week through Friday.

The oil drilling rig tally, an early indicator of future production, rose by nine to 318 last week, the highest since April, energy services firm Baker Hughes Co said in its closely followed report.

The rig count has been rising over the past seven months and is up nearly 70% from a record low of 244 in August.

Oil Struggling to Regain Mojo After Worst Week Since October

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