Oil drops to six-week low on lockdown concerns

Customer replaces fuel pump nozzle at Chevron Corp. filling station. in San Francisco, California, USA on Wednesday 7 July 2021

David Paul Morris | Bloomberg | Getty Images

Oil prices fell to a six-week low on Friday as new Covid restrictions sparked concerns over demand and industry players signal a return to supply.

But for consumers looking for a refueling delay, such a cut is unlikely to immediately drive gas prices down. On Friday, the national average per gallon of gas was around a seven-year high of $ 3.41, according to AAA. That’s up from $ 3.34 a month ago and $ 2.12 last year.

The benchmark US crude oil fell more than 4% to a session low of $ 75.37, which has not been seen since Oct. 7.

Oil traded in green territory earlier that day, but fell into negative territory following news of lockdowns in Austria. The recovery in demand has been a key factor in the recovery in oil this year, and any signs that it may thaw will scare market participants. The blockage reduces the demand for petroleum products as people do not move and factories are closed. If the measures are spread outside Austria to other parts of Europe or elsewhere, this could cause an oversupply in the market.

“The market is still in good shape, but blockages now pose an obvious risk if other countries follow Austria’s lead,” said Craig Erlam, senior market analyst at Oanda. “A move below $ 80 could exacerbate the correction, possibly pushing the price back to the mid-$ 70 area,” he added.

The December futures contract expires today, with the more actively traded contract for January delivery falling 3.8% to $ 75.44 a barrel. Brent crude oil futures, an international benchmark, have traded at $ 78.15 for the first time since October 1.

Both WTI and Brent are posting losses for the fourth straight week, the longest weekly losing streak since March 2020.

“A slight drop in gas demand, possibly due to seasonal changes in driving habits, is contributing to a slight drop in pump prices,” an AAA spokesman said on Monday, before adding that “the continuing shortage of crude oil is likely to drive price volatility. for gas. , instead of falling for a while. “

While Friday’s decline for oil was the largest since July, commodities have been on a downward trend in the past few weeks. The Biden administration has said on several occasions that it is exploring ways to alleviate the burden that rising oil is placing on consumers in the form of gas prices, which hover around a seven-year high. One option for the administration would be to use the Strategic Oil Reserve.

“If the US presidential administration wants attention to the oil market, it now has it, as all eyes are on Washington to see if it will raise the rate on the PRC release, followed by a coordinated effort to put further downward pressure on oil prices.” . “, said Louise Dixon, senior oil analyst at Rystad Energy. “The US is publicly scrutinizing the oil market, in particular OPEC +, to ease supplies and ensure price cuts from the summer, as well as other importing countries such as China, India and Japan. [are] join the choir. “

However, analysts noted that the release of oil from the SPR is likely to have little long-term impact.

“While such a move will drive prices down, SPR can only fill the gap during temporary disruptions in production, but not address the structural problems of underinvestment and rising demand,” UBS said in a November 5 message to clients.

Aside from political hurdles, oil is also facing pressure from a surge in supply as producers, including in the US, bring production online.

Crude oil rose steadily throughout 2021, with WTI crude hitting a seven-year high of $ 85.41 on October 25. Since then, it has dropped 11.5%. Despite recent weakness, U.S. oil will continue to rise 55% in 2021.

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