New York—Crude oil futures settled 6% lower March 23 as the market reeled from pandemic-dented demand outlooks and a stronger US dollar.
NYMEX May WTI was down $3.79 at $57.76/b, settling below the $60/b level for the first time since March 2, while May ICE Brent slid $3.83 to settle at $60.79/b."Rising [COVID-19] cases in Europe and tighter lockdown restrictions are reawakening future demand concerns," OANDA market analyst Sophie Griffiths said in a note. "Add into the picture the UK government's insistence that holidays abroad are still firmly off bounds and a jet-sized hole in demand remains stubbornly in place."
NYMEX April RBOB settled 6.34 cents lower at $1.8964/gal and April ULSD declined 8.04 cents to $1.7489/gal.
Germany on March 23 announced it would extend a nationwide lockdown through April 18, following on the heel of France, Italy and Poland which announced new lockdowns earlier in March. Over the weekend, German health minister Jens Spahn warned that vaccines were not arriving quickly enough to prevent a third wave of the COVID-19 pandemic. This came after Spahn said at a news conference that new infections in the country were rising at a "very clearly exponential rate."
Front-month Brent settled at an 8 cent/b discount to the second-month contract, opening the first contango in that part of the forward curve since Jan. 15.
Front-month Brent and WTI settled below their respective 50-day moving averages for the first time since Nov. 6. Crossing the average line is a technical indicator that reflects sustained bearish sentiment and could suggest further price declines, analysts said.
"The swing lower was triggered by the deteriorating near-term demand outlook in the face of still hampered refineries, surging interest and renewed European lockdowns. Expectations that China will import more Iranian oil, also played a roll in driving crude prices lower," TD Securities head of commodity strategy Bart Melek said in a note. "This in combination with Saudi Arabia possibly reversing its one million b/d production cuts, and more OPEC+ oil overall, could mean that WTI is at risk of correcting all the way down to $52/b."
A stronger US dollar further weighed on oil prices. The ICE US dollar index rallied to 92.33 in afternoon trading, testing four-month highs seen earlier in March.
"We still have a very uneven recovery in demand," Saxo Banks's Head of Commodity Strategy Ole Hansen said. "It's not coming as quickly as is priced into crude. India, one of the biggest crude consumers, and many other countries have more lockdowns and delayed vaccine rollouts. Prices were building in quite an aggressive 2021 demand increase which hasn't been seen so far. This means this increase would have to be squashed into the second half of the year to justify current prices, making it trickier."
The seven-day moving average of global new coronavirus cases reached 494,171 by the end of March 22, the highest level since Feb. 3, according to data from John Hopkins University. In India in particular, the average climbed to 39,533, the highest since Dec. 1.
