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Oil faces demand pressure from renewed Covid-19 fears

by Başak Ceylan -
  • 23/11/2021 (02:55)
Crude oil prices settled at their lowest in around seven weeks on Friday last week, marking the fourth consecutive week of drops and longest streak of declines since March 2020. The sentiment was directly hit by new Covid-19 waves in Europe, as well as talks regarding coordinated oil reserve releases among some of the world’s biggest economies.

On Friday, the US crude benchmark WTI settled at its lowest since October 1 while Brent crude finished at its lowest since September 30. Both benchmarks were down a fourth consecutive week for the first time in almost 20 months.

Crude Oil – WTI - Brent
Oil has fallen steadily from a high in late October. Brent futures averaged $84/bbl last month, up $9/bbl from September, while WTI futures averaged $82/bbl in October, increasing by $10/bbl month-on-month.

Concerns about near-term oil demand have already been evident amid the resurgence of lockdowns in Eastern Europe and Russia. Further weighing on the outlook was Austria joining Latvia as the only EU nations to return to lockdown since vaccines became widely available. As of November 22, Austria became the first western European country to re-impose a full lockdown amid soaring cases.

Meanwhile, reports indicating that the US administration has asked some of the world’s largest oil-consuming nations to consider releasing crude oil stockpiles from their reserves to ensure stability in global energy markets also weighed on the sentiment.

On November 17, the US and China -the world’s two largest oil consumers- reportedly discussed releasing crude stockpiles in a coordinated effort. On November 22, media reported that Japanese officials were preparing to release oil from the country’s national reserves of crude oil, following the request from the US administration.

Analysts expect Covid-19 to remain a key challenge that the global economic recovery is facing during the winter season. The renewed rapid rise in infections across Germany has also fuelled expectations of another round of lockdown for the largest economy of Europe.

In addition to the resurgence of infections in the Eurozone, an internationally coordinated release of oil reserves also remains a factor to monitor in near-term.
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