WTI drops $ 2.50 to $ 76.00 as European foreclosure, crude oil reserve release fears weigh in
- WTI is down sharply on Friday and on track to lose more than 5.0% this week.
- Prices have been battered by foreclosure fears in Europe and concerns over the release of global crude oil reserves.
Oil prices are down sharply on the last trading day of the week, fearing European lockdowns will affect demand. First-month futures for the U.S. benchmark for light sweet crude, West Texas Intermediary or WTI, plunged to a new six-week low below $ 76.00 at some point earlier in the session. WTI has since moved north of the $ 76.00 level, but that means it’s still down over $ 2.50 or over 3.0% on the day. Over the week, losses are closer to $ 4.50 (over 5.0%).
Austria became the first western European country to announce a full lockdown on Friday, as rates of Covid-19 infection and hospitalization rise. The lockdown will apply to all citizens and will last for 20 days, after which the restrictions on the unvaccinated will continue. Other European countries have also reimposed restrictions on daily living and commerce (like the Netherlands) and fears are growing that they could be next in line to enact broader lockdowns. The German Minister of Health said on Friday that the health situation in the country had become so serious that total containment, including for those vaccinated, could not be ruled out. Widespread European blockages would deal a severe blow to European fuel demand.
Elsewhere, crude oil prices were also weighed this week amid fears of an imminent release of crude oil reserves by major oil-consuming countries. The United States, in response to OPEC + ‘s refusal to increase production at a faster rate earlier this month, has spent the last few days asking major Asian oil importers to release reserves. Chinese authorities have already announced their intention to do so. According to commodities strategists at Goldman Sachs, additional supplies of 100 million barrels (i.e. from a release of global oil reserves) have now been valued by the market. This may limit the possibility of further declines in crude oil following the story of the release of reserves, which Goldman analysts have called a “short-term solution to a structural deficit.”
Finally, another theme that may have contributed to the recent drop in oil prices is the gossip / growing concern that oil markets, currently in a significant supply shortage, may soon be heading into a supply oversupply. The OPEC secretary general believes the markets will be in surplus by December, while the UAE oil minister saw it happen in the first quarter of 2022. US oil production is expected to continue to recover in a context of higher prices and smaller members of OPEC + who have struggled to keep up with the increase in production. quotas should catch up in the coming months. In addition, weaker European demand amid shutdowns during the winter months can also facilitate the closing of the supply gap.