Oil prices continued heading lower on Tuesday as the new fast-spreading strain of COVID-19 that originated in the UK has prompted fears that global travel will be curtailed.
Many countries chose to suspend travel to the UK on Monday following news of the new strain of coronavirus. Negotiations are also still continuing between the UK and French governments to re-open the borders and travel stocks are still taking a major hit on the FTSE (^FTSE) in the aftermath on Tuesday.
Fears are now focused on whether the global economic recovery will be further stalled with this strain’s rise, stoking fears of renewed restrictions on movement over the mid-term, which will undermine airline and car travel that requires fuel.
Market panic over the new mutant strain set in on Monday, with Brent crude falling 2.85% to $50.80 a barrel. Still, analysts were expecting a market pullback.
“Quite a lot of speculative long positioning would have been culled overnight,” said Jeffrey Halley, senior market analyst at OANDA. “Still, given the scale of oil's two-month rally, a deeper correction cannot be ruled out as the environment remains decidedly risk-averse.”
The recent decline in oil prices stands in contrast to the price hike of more than 30% since the end of October, partly due to improved market sentiment following new of COVID-19 vaccine breakthroughs.
Even prior to the news of the latest COVID-19 strain breaking on Monday, the International Energy Agency said last week that the oil glut left behind by the pandemic would continue until the end of 2021, leading it to reduce its forecast for the year by 170,000 barrels a day.
“Demand is clearly going to be lower for longer than expected” than when the virus first emerged, the agency said. “The market remains fragile,” it warned.
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