Oil dropped below $61 a barrel on concerns about the near-term demand outlook amid the uneven rebound from the pandemic. Futures in New York slipped 1.1% after two days of gains. Covid-19 cases are surging in India and threatening the economy’s recovery from a rare recession, while in Southeast Asia, demand has hit a plateau and is unlikely to reach pre-virus levels until the end of 2021 or later. In the U.S., New York City’s mayor urged a pause on reopening, and some European nations are extending or reimposing lockdowns.
The prompt timespread for global benchmark Brent crude, meanwhile, is near the narrowest backwardation in about two months. The bullish structure is rapidly approaching a bearish contango, a signal of oversupply.
While oil’s sustained advance this year stalled recently, there is confidence in the longer-term outlook as Covid-19 vaccinations are rolled out worldwide and as the U.S. unleashes significant stimulus. OPEC+ members are continuing to put a floor under prices through a series of output cuts, with the group scheduled to meet next week to determine production policy for May.
“There is now no chance that OPEC+ adjusts its production cuts lower next week,” said Jeffrey Halley, an analyst at Oanda Asia Pacific “I had expected a pullback to cull the speculators, just not this deep. In the short-term, I am expecting oil to range with a bias to the downside.”
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