Oil prices slump on prevailing lockdowns in Europe

Crude Oil prices dropped at the second trading session of the week.

The slump in oil prices is largely attributed to prevailing lockdowns in Europe and a forecast for a slower recovery in demand next year. In addition, is the relief from COVID-19 vaccination rollouts and concerns about a flare-up of tension in the Middle East.

What you should know

At the time of writing this report, U.S. West Texas Intermediate (WTI) crude futures dropped 0.6%, to trade at $46.63 a barrel.

While, Brent crude slumped by 0.68% to $49.96 a barrel, thereby erasing yesterday’s gain.

Leading European countries like the United Kingdom, have stepped up restrictions requiring bars and restaurants to close, as COVID-19 infection rates continued to rise sharply, which will dent fuel demand in the near term.

What they are saying

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on the prevailing fundamentals keeping oil prices relatively up in the long term. He also hinted at geopolitical situation happening in the Middle East;

“Oil markets are being viewed as an overall bellwether to the market reopening sentiment, as this year’s negative year-on-year base effect will most certainly give way to Q1 exuberance. But even oil still had a bit of a bumpy ride overnight, pressured from lockdown sieges on both sides of the pond and some less optimistic demand forecasts from OPEC and the company. Hopes of more vaccination rollouts, the possibility of a coronavirus stimulus being agreed in the US, and possible tensions in the Middle East due to a terrorist attack on a tanker in the Saudi port of Jeddah all brought support to prices.”

What to expect: Signs of rally fatigue are setting in as buy volumes show less of an appetite above Brent $50, suggesting the market is nearing both sentiment and actual supply and demand equilibrium, where oil price reality has quickly caught up with emotion.