A new COVID-19 lockdown sparked demand concerns just as industry players indicated a return to supply on Friday, sending oil prices to a six-week low.
As a result, the benchmark U.S. price for oil plunged more than 4% to $75 a barrel, the lowest since October 7.
On Friday morning, crude traded in the green but slid into negative territory as a result of Austria’s lockdown.
This year’s oil recovery has been driven by demand rebound, so any indication that this might thaw would spook investors.
People aren’t moving about and businesses are closed during lockdowns, which saps demand for petroleum products.
The measures may tip the market into oversupply if they extend beyond Austria to other parts of Europe or elsewhere.
A move below $80 could deepen the correction, possibly pulling the price back towards the mid-$70 region if other countries follow Austria’s lead; the market remains fundamentally strong, but lockdowns pose a risk now if other countries follow Austria’s lead.
The December contract expires today, while the January delivery contract, which is more actively traded, dropped 3.8% to $75.4 per barrel. As of Oct. 1, Brent crude futures hit a low of $78.1, the lowest level since Oct. 1.
A fourth consecutive week of losses for both crude oil benchmarks will be the longest losing streak since March 2020.
Gas prices are being relieved at the pump, possibly due to seasonal changes in driving habits, but a continuing tight supply of crude oil will most likely keep them fluctuating rather than dropping permanently.
The decline for oil on Friday was its largest since July, but it has been trending lower over the last few weeks.
Gas prices are hovering around a seven-year high, which has prompted the Biden Administration to explore ways to ease the consumer burden caused by high oil prices. Tapping the Strategic Petroleum Reserve is one option.
From the summer through the fall, the US has publicly probed the oil market, and in particular, OPEC+, to alleviate supply and reduce prices, and other importing countries such as China, India, and Japan are joining the chorus.
Despite this, analysts have noted that releasing oil from the SPR wouldn’t have a significant long-term effect.
This article was originally posted on FX Empire