The oil drops to a six-week low due to lockdown concerns

Oil pumping jacks, also known as “nodding donkeys” in an oil field from Rosneft Oil Co. near the village of Sokolovka in the Udmurt Republic, Russia, Friday, November 20, 2020.

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Oil prices fell to a six-week low on Friday as new Covid lockdowns triggered demand concerns, and industry players signaled a return to supply.

But for consumers looking for exposure at the pump, the decline is unlikely to immediately translate into lower gas prices. The national average for a gallon of gas was about seven years high at $ 3.41 on Friday, according to AAA. That’s an increase from $ 3.34 a month ago and $ 2.12 last year.

The US benchmark for oil fell more than 4% to a low of $ 75.37, a price not seen since October 7.

Crude oil traded in the green earlier in the day, but fell into negative territory following news of Austria’s lockdowns. The recovery in demand has been a major driver of oil recovery this year, and any indication that it may thaw will frighten market participants.

“The market is still fundamentally in a good position, but lockdowns are now an obvious risk for this if other countries follow Austria’s lead,” said Craig Erlam, senior market analyst at Oanda. “A pull below $ 80 could deepen the correction, perhaps pulling the price back towards the mid-$ 70 region,” he added.

The December futures contract expires today, with the more actively traded contract for delivery in January falling 3.8% to $ 75.44 per share. barrel. Brent crude futures, the international benchmark, traded as low as $ 78.15 for the first time since October 1st.

Both WTI and Brent are heading for a fourth consecutive week of losses, which is the longest weekly loss series since March 2020.

“A small drop in gas demand, possibly due to seasonal changes in driving habits, is contributing to some price relief at the pump,” a AAA spokesman said Monday, adding that “the ongoing tight supply of crude oil is likely to keep gas prices fluctuating. , instead of dropping, for some time. “

While Friday’s fall is the largest for oil since July, commodity prices have been lower over the past few weeks. The Biden administration has repeatedly said it is exploring ways to ease the burden that higher oil places on consumers in the form of gas prices, which are hovering around the highest for seven years. One option would be for the administration to exploit the strategic oil reserve.

“If the U.S. presidential administration wants the oil market’s attention, it has it now, as all eyes are on Washington to see if it will come up with China’s SPR release with a follow-up coordinated effort to put further downward pressure on oil prices.” said Louise Dickson, senior oil market analyst at Rystad Energy. “The US has publicly researched the oil market, particularly OPEC +, to facilitate supply and provide price relief since the summer and other importing countries such as China, India and Japan [are] included in the chorus. “

That said, analysts have noted that releasing oil from the SPR probably would not have much of a long-term impact.

“Although such a decision would result in price setbacks, SPR can only fill the gap during temporary production disruptions, not solve structural problems of underinvestment and rising demand,” UBS said in a note to customers on 5 November.

In addition to political headwinds, oil is also subject to pressure from an increase in supply as manufacturers, including in the US, bring production online.

Oil has steadily climbed higher through 2021, with the WTI hitting its seven-year high of $ 85.41 on October 25th. Since then, it has fallen 11.5%. Despite the recent weakness, US oil is still rising by 55% in 2021.

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