(Bloomberg) --Oil plummeted the most in seven weeks, with investors fleeing the market as a mutation of Covid-19 discovered in the U.K. threatened more lockdowns across Europe.
Brent futures slumped below $50 a barrel, at one stage falling almost 6%. More than 16 million Britons are now required to stay at home after a full lockdown came into force in London and the southeast of England. Some European countries are limiting travel with the UK and France halted freight movements to England for 48 hours.
That’s feeding concerns that a new wave of movement restrictions could come into effect across the region, curbing a recovery in global consumption. A stronger dollar also reduced the appeal of commodities such as oil that are priced in the currency.
Meanwhile, physical oil prices are cooling as Asian refiners ease purchases after an earlier-than-usual buying spree. Abu Dhabi’s Murban crude was sold last week on the spot market below its official price for the first time since August, while differentials for Russia’s ESPO and Urals have also slumped. The structure of the futures curve weakened Monday, indicating supply concerns.
Crude has rallied by almost a third since the end of October on a series of vaccine breakthroughs that boosted expectations for a recovery in energy demand next year. In the short term, however, prices are being buffeted as the fast-spreading virus leads to more stay-at-home orders.
“Oil prices are wilting amid fears that the new strain will derail the fuel demand recovery,” said PVM Oil Associates analyst Stephen Brennock. “If anything, it reaffirms that the path toward demand normalization is anything but smooth.”
Brent for February settlement dropped 4.9% to $49.68 a barrel at 11:18 a.m. in London. It closed up 1.5% on Friday
Trading volumes on the Brent benchmark were more than double the average for the time of day over the last 10 days
West Texas Intermediate for January delivery, which expires Monday, fell 5.1% to $46.59 a barrel
OPEC+ will react faster to changes and take a more hands-on approach with the oil market thanks to its accelerated schedule of monthly meetings, Russia and Saudi Arabia said over the weekend. The group will consider whether to add 500,000 barrels a day of production to the market on Jan. 4.
Money managers continued to add bullish bets to the oil market last week. Speculators were the most optimistic on the global Brent benchmark since February in the week through Dec. 15.
“We have quite a bit of speculative money in oil at the moment, attracted by the more constructive outlook for 2021,” said Warren Patterson, head of commodities strategy at ING Groep NV. “However, if we start seeing the virus mutating, I imagine some of these speculators will become a bit more skittish.”