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Oil Prices Drop Further as Rising Covid-19 Numbers Hit Demand

Oil prices eased on Tuesday, giving up some of the previous session’s gains, as hopes for rapid approval of new U.S. economic stimulus faded while new coronavirus infections around the world mount up.

Brent crude was down 15 cents at $55.73 by 0135 GMT, having risen nearly 1% on Monday. U.S. crude was also lower, dropping 5 cents to $52.72, after declining 1% in the previous session.

Have recently hit 11-month highs, oil is caught between lingering doubts over any recovery in demand as the pandemic continues to rage, offset by optimism for more stimulus from the newly installed Biden administration in the United States to support economic growth as vaccines are rolled out.

But Biden administration officials are still trying to convince Republican lawmakers of the need for more stimulus, raising questions over when it will be approved.

“Through 2021, major supply and demand risks remain that threaten to jolt fundamentals into a much tighter or looser market,” Citigroup said in a note.

The bank cited the risk of higher supply if sanctions on Iranian crude are lifted, or U.S. drillers boost output from shale, against a bigger demand shock from the latest wave of lockdowns and restrictions.

European nations have set tough restrictions to combat the spread of the virus, while China is reporting rising new Covid-19 cases, casting a pall over demand prospects in the world’s largest energy consumer.

Still, there are areas where demand for oil remains strong. In India, crude oil imports in December increased to their highest level in more than two years as the easing of coronavirus restrictions boosted economic activity.

OPEC+ Continues Oil Cuts

On the supply side, compliance by the Organization of the Petroleum Exporting Countries and its allies on pledged oil output curbs is averaging 85% in January, tanker tracker Petro-Logistics said on Monday. The findings suggest the group has improved compliance supply curb commitments.

Also, output from the giant Tengiz field in Kazakhstan was disrupted by a power cut on Jan. 17.