Oil was poised for its first weekly loss since October as the discovery of a potentially faster-spreading variant of Covid-19 in the U.K. raised the risk of more demand-sapping lockdowns. Brent futures were flat near $51 a barrel on Thursday, but are down almost 2% this week. Tougher restrictions were extended to much of England in an effort to contain a new strain of Covid-19 and rein in rapidly rising infection rates. Early analysis from scientists and governments around the world suggests the variant may be as much as 70% more transmissible.
A decline in U.S. crude inventories injected some optimism into the market, helping U.S. futures to finish 2.3% higher on Wednesday. Dollar weakness is also boosting the appeal of commodities priced in the currency, while the U.K. and European Union are set to unveil a post-Brexit trade agreement.
“There are still opposing forces at work at the moment,” UBS Group AG analyst Giovanni Staunovo said. Mobility restrictions in Europe are weighing on oil demand, but the oil market is still in deficit as a result of the OPEC+ cuts this year. “In that sense, the road to higher oil demand and prices will remain bumpy also over the coming weeks.”
Despite Trump’s term nearing an end, “as president he can still keep pressure elevated in the region until the last day,” Staunovo said.
Oil is closing out the year on a more somber note after a run of seven weekly gains driven by euphoria over a series of vaccine breakthroughs. The new strain and the realization that vaccines will take some time to be rolled out have worsened the short-term outlook, while the OPEC+ alliance is poised to add 500,000 barrels a day of production in January.
The latest vaccine to be developed was mired in doubts over transparency. Chinese pharmaceutical firm Sinovac Biotech Ltd. said its vaccine is more than 50% effective — well below the results achieved by Moderna Inc. and Pfizer Inc. — but researchers delayed releasing more information on the trials.
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