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Oil prices fall on surprise inventories and Trump's threats to COVID-19 relief bill

Kumutha Ramanathan
·Contributor
·3 min read
Oil pumps working under the sky
Oil prices are not expected to reach pre-pandemic levels until after 2021, according to the IEA. Photo: Getty

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.

Brent (BZ=F) is down 0.3% at $49.92 (£36.57) a barrel at around 9.30am in London. Crude (CL=F) has been wavering in early trading, up slightly 0.1% at around 10am.

The benchmark Brent oil price has been under pressure since Monday as news broke of the UK's novel COVID-19 strain.
The benchmark Brent oil price has been under pressure since Monday as news broke of the UK's novel COVID-19 strain. Photo: Yahoo Finance
Crude prices have been recovering at around 10am in London but were descending earlier in trading.
Crude prices have been retracing losses from earlier in trading on Wednesday. Photo: Yahoo Finance

“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.

READ MORE: FTSE slides on more impending COVID lockdowns amid Brexit and US stimulus concerns

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.

Even prior to news breaking of the novel COVID-19 strain out of the UK, the IEA predicted oil consumption growth would be permanently impacted by the reduction in travel, particularly by airplanes. Chart: IEA/World Bank
Even prior to news breaking of the novel COVID-19 strain out of the UK, the IEA predicted oil consumption growth would be permanently impacted by the reduction in travel, particularly by airplanes. Chart: IEA/World Bank

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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