Oil Moves Lower Amid Renewed Virus Fears

Oil Video 21.12.20.

The New COVID-19 Strain Will Put Additional Pressure On Oil Demand In Europe

Oil is under serious pressure today amid fears that the new COVID-19 strain from UK will put additional pressure on demand.

Many countries have closed their borders for British travelers after UK Prime Minister Boris Johnson stated that his country had to fight against a new, highly infectious strain of coronavirus.

Germany has already pushed for a joint European response against the new threat. Most likely, additional virus containment measures will be implemented across the EU starting from the beginning of the next year while the UK may have to go into another lockdown.

It remains to be seen whether EU countries will be able to quickly come up with the new measures during the holiday time between Christmas and New Year. However, such measures are inevitable which does not look good for oil demand in the near term.

At this point, a lot will depend on whether the new strain is mostly kept inside UK or it starts to spread actively in other countries. In the best case scenario, the damage to oil demand from this new strain will be mostly limited to reduced flights to and from Britain as well as some disruption in Europe in the next few weeks.

The Number Of U.S. Oil Rigs Moves Higher

The recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil increased by 5 to 263. Last week’s EIA Weekly Petroleum Status Report showed that U.S. domestic oil production declined from 11.1 million barrels per day (bpd) to 11.0 million bpd which was surprising given the recent increase in the number of U.S. oil rigs.

As the number of U.S. oil rigs continues to grow, U.S. domestic oil production may get a boost which may lead to an increase in inventory levels at a time when the market is dealing with the uncertainty brought by the new strain of coronavirus.

In addition, OPEC+ will increase its production by 500,000 bpd from January, which may put more pressure on the market. At the same time, vaccine optimism may continue to push oil towards new highs, especially if vaccines are found to be effective against the new strain.

For a look at all of today’s economic events, check out our economic calendar.