Oil slumps as new Covid-19 strain threatens demand

Oil was down on Monday morning in Asia, slumping over the discovery of a new Covid-19 strain in the UK which could stall a nascent recovery in fuel demand and the global economy in general as tighter restrictions are introduced.

Brent oil futures slumped 3.20% to $50.59 by 10:45 PM ET (3:45 AM GMT) and WTI futures fell 3.09% to $47.72. WTI futures rolled over to the Feb 21 contract on Dec. 20. “A new variant of the coronavirus in Britain and tighter travel restrictions in Europe sparked fears over slower economic recovery, prompting investors to unwind long positions … the oil market has been on a bull trend in the past month or so, ignoring negative factors, amid an optimism that a widening vaccine rollout would revive global growth, but investors’ rosy expectations for 2021 have suddenly vanished,” Fujitomi Co. chief analyst Kazuhiko Saito told Reuters.

The variant, which is reportedly 70% more transmissible than the original strain of the virus, has also prompted concerns about a wider spread. Countries including France, Germany, Italy, the Netherlands, Ireland, Canada, Argentina and Chile have banned travelers from UK, with some also banning freight. Other countries are considering similar bans.

UK Prime Minister Boris Johnson will chair an emergency response meeting later in the day to discuss international travel, with freight in and out of the country of particular concern. The country is also negotiating a post-Brexit trade deal with the European Union.

News of the new Covid-19 strain overshadowed the deal reached in the US Congress for a $900 billion Covid-19 bill. The House of Representatives will vote on the bill later in the day, followed by the Senate.

Oil prices had marked seven straight weeks of gains last week as investors focused on the rollout of Covid-19 vaccines. On that front, the Food and Drug Administration also granted emergency use approval for Moderna Inc’s (NASDAQ:MRNA) vaccine mRNA-1273 over the weekend, following the earlier approval for Pfizer Inc (NYSE:PFE) and BioNTech SE’s (F:22UAy) vaccine BNT162b2.

Prices were also under pressure after the oil and gas rig count rose by eight to 346 in the week to Dec. 18 on Friday, its highest since May, according to Baker Hughes. The count was an indication that producers are continuing to return to the wellpad.

First published on Investing.com