Oil prices dipped in early trade today, with demand worries due to tighter lockdowns in Europe outweighing relief from vaccination rollouts and concerns about a flare-up of tension in the Middle East.
U.S. West Texas Intermediate (WTI) crude futures fell 16 cents, or 0.3%, to $46.83 a barrel at 0158 GMT, while Brent crude futures fell 20 cents, or 0.4%, to $50.09 a barrel, erasing half of Monday’s gains.
London stepped up restrictions requiring bars and restaurants to close, as COVID-19 infection rates continued to rise sharply, which will dent fuel demand in the near term.
Further marring the demand outlook, Italy said it was considering more stringent restrictions over the Christmas holidays, while most stores in Germany have been ordered to shut until Jan. 10, with little prospect of an easing early in the new year.
However vaccination rollouts in the United States, Britain and Canada, which spurred a sharp rally in oil prices last week, continue to keep Brent above $50.
“You’ve got demand recovery hopes based on the rollout of vaccinations, but increasing restrictions on the pandemic side,” said Commonwealth Bank commodities analyst Vivek Dhar.
OPEC on Monday pared its forecast for the oil demand recovery in 202l by 350,000 barrels per day, due to the persistent impact of the coronavirus pandemic, but said a rapid rollout of vaccines in major economies “provides potential upside for next year’s growth forecast.”
In a sign of weaker demand, analysts expect data from the American Petroleum Institute on Tuesday and the Energy Information Administration on Wednesday to show that U.S. gasoline inventories rose by 1.6 million barrels last week, while distillate inventories, which include diesel and heating oil, rose by 400,000 barrels.
Oil prices found some support after a fuel transport ship at the Saudi Arabian port of Jeddah was hit by an explosion yesterday, which the energy ministry called a terrorist attack. That followed an attack on two oil wells in Iraq last week.
“When you have the level of tension rising in the Middle East, you build in a bit of a premium in pricing,” Dhar said.