Brent crude was down 8% this week, closing at $65.15 per barrel. US WTI crude was down 2.2% and closed at $62.32 last Friday. Oil made its most significant losses this week in over nine months and continued to slip on Friday. Investors’ fears of the increase in Covid-19 cases resulted in them selling off futures since demand will drop.
It’s been seven days of consecutive losses for crude oil. Travel restrictions are instead by multiple countries in an attempt to curb the spread of the virus. Global fuel demand, including jet fuel, has dropped significantly as travel restrictions are in place. China also hiked up their sanitization protocols at ports which are causing traffic congestion.
The United States and China implemented flight capacity restrictions, and China who has a ‘zero tolerance’ coronavirus policy, has imposed new limitations. However, these restrictions are disturbing worldwide supply and shipping.
According to John Kilduff, partner at Again Capital LLP in New York, the outbreaks are minimal, and the reaction from countries is too harsh, which impacts demand directly.
In the US, multiple companies have postponed returning to offices. Apple Inc has postponed its employees’ return until early 2022.
Oil is down, USD is making record highs
Oil is inversely correlated to the US dollar because the greenback denominates it. With the Fed announcing plans to start tapering soon, the US dollar hit a nine-month high. The dollar index is now maintaining the 93.470 level and gained against all major currencies last week. Now, oil is a more expensive commodity to foreign buyers when the dollar gains.
Oil demand might have slowed; however, production output has increased to 11.4million barrels per day in the USA. Furthermore, drilling companies have added rigs to keep up with the production.
Crude supply was paused early on in the pandemic, but OPEC and their allies are slowly increasing supply. The expectation is an increased supply in the months to come, based on futures contracts.
According to John Kilduff, the price will struggle to find support with the current uncertainty. MetaNews to update further.