Oil falls as demand concerns outweigh Suez Canal disruptions

Oil prices fell on Thursday as a new round of coronavirus restrictions in Europe revived worries about demand for oil products, even as tug boats struggled to move a stranded container ship blocking crude oil carriers in the Suez Canal.

Brent crude slid $0.62, or 1%, to $63.79 a barrel at 1048 GMT. US West Texas Intermediate (WTI) crude dropped by $0.79, or 1.3%, to $60.39 a barrel.

Both contracts jumped about 6% on Wednesday after a ship ran aground in the Suez Canal, one of the world’s most important oil shipping routes.

The Suez Canal Authority said on Thursday it had suspended traffic temporarily while eight tugs work to free the vessel.

“We believe that the incident mostly creates noise in the market, and should remain without any lasting fundamental impact,” said Norbert Rücker, analyst at Julius Baer bank. “Usually, similar incidents last days rather than weeks.”

Wood Mackenzie’s Vice President Ann-Louise Hittle said a few days of delays in crude or product travelling through the Suez Canal to Europe and the United States should not have a prolonged impact on prices in those markets.

The oil market was more worried about the prospect of extended lockdowns in Europe and disruptions to the distribution of coronavirus vaccines.

India reported its highest one-day tally of new coronavirus infections and deaths and said a new “double mutant” variant had been found.

“While the focus was on Europe, we also have rising Covid-19 cases in places like India and Brazil, developing economies which are really critical to the story for sustainable oil demand growth,” said Commonwealth Bank commodities analyst Vivek Dhar.

Given the persistent demand worries and falling prices, expectations are growing that the Organisation of the Petroleum Exporting Countries and allies, together called OPEC+, will roll over their current supply curbs into May at a meeting scheduled for April 1, four OPEC+ sources told Reuters.

“Oil markets are unlikely to renew their upward momentum aggressively until OPEC+’s next meeting in early April, which should leave production cuts unchanged,” said Jeffrey Halley, senior market analyst at Oanda.

The global oil market was also under pressure as producers faced difficulties selling to Asia, especially China. Asian buyers instead took cheaper oil from storage while refinery maintenance has reduced demand, industry sources said.

A strong dollar also weighed on oil prices. The dollar hit a new four-month high against the euro as the US pandemic response continued to outpace Europe’s.