Oil prices continued their overall descent for a third day on Wednesday following a surprise rise in US crude oil inventories and US president Donald Trump threatening to undermine his nation’s highly-anticipated second COVID-19 relief bill.
Oil markets are also still facing pressure from the novel coronavirus strain that has hit the UK, leading many countries around the world to close its borders to the country, further undermining gasoline-powered air and car travel.
Coronavirus cases are also continuing to surge in the US, with more than a million new cases reported in six days, leading to warnings by US lawmakers for citizens to avoid Christmas travel, which will further dampen fuel demand.
“The repricing of the COVID-19 reality in the world continued unabated in oil markets overnight, with US API Crude Inventories showing a surprise climb, and adding to the gloom,” said Jeffrey Halley, senior market analyst at Asia Pacific OANDA.
Brent crude fell through $50.00 a barrel on Tuesday, finishing 2% lower at $49.80. West Texas Intermediate (WTI) was also lower by 2.25% to $46.75 a barrel.
The American Petroleum Institute (API) reported on Tuesday that US crude inventories rose by 2.7 million barrels in the week to 18 December. Analysts were expecting a draw of 3.2 million barrels.
Given the border closures precipitated by the new COVID strain in the UK, travel disruption is further putting pressure on prices.
Ravindra Rao, vice president of commodities at Kotak Securities said: “Sometime earlier, the expectation was that the virus threat was subsiding, and demand was slowly and slightly moving higher” but with the advent of a new strain, “the market is purely operating on sentiment right now that it is going to create more restrictions.”
Months of debate by Republican and Democratic lawmakers on a COVID-19 relief bill could also potentially have been roiled by US president Trump’s statements on the relief provisions.
In a video posted on Twitter, US president Trump said the stimulus bill was “a disgrace” and that he wanted to increase the “ridiculously low” $600 checks for individuals to $2,000.
After falling drastically in April in the wake of the coronavirus pandemic, oil prices partially rebounded following a consensus decision among the Organisation of the Petroleum Exporting Countries (OPEC) and its partners to reduce production. The group agreed to cut production by 9.7 million barrels per day (mb/d), almost 10% of global oil supply.
Even before the announcement of the new COVID-19 strain, the International Energy Agency (IEA) predicted oil consumption would be permanently impacted by the pandemic. With jet fuel accounting for two-thirds of oil consumption by transport means, it is predicted to be “well below its pre-pandemic trend.”
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