Oil falls more than 3% as coronavirus restrictions in Europe point to a hit in demand By Reuters

By Ahmad Ghaddar

LONDON (Reuters) – Oil prices fell more than 3% on Tuesday, hurt by concerns that new pandemic restrictions and slow vaccine launches in Europe will slow the recovery in demand, while a stronger dollar also weight.

futures fell $ 2.20, or 3.4%, to $ 62.42 a barrel at 0948 GMT. US West Texas Intermediate (WTI) crude futures fell $ 2.10, or 3.4%, to $ 59.46 a barrel.

The market structure also pointed to weakness, with the first month’s Brent spread turning into a small contango for the first time since January.

Contango is where first month contracts are cheaper than future months and could encourage traders to store oil.

“Continental Europe is tightening measures against the coronavirus and thus further restricting mobility,” said Commerzbank (DE :).

“This is likely to have a corresponding negative impact on oil demand,” they added.

The prolonged lockdowns are being driven by the threat of a third wave of infections, with a new variant of the coronavirus on the continent.

Germany, Europe’s biggest oil consumer, is extending its lockdown until April 18 and asked citizens to stay home to try to stop a third wave of the COVID-19 pandemic.

This comes after nearly a third of the French entered a month-long shutdown on Saturday following a spike in COVID-19 cases in Paris and parts of northern France.

A stronger US dollar also affected prices. Since oil is priced in US dollars, a stronger dollar makes oil more expensive for holders of other currencies.

The physical markets for crude indicate that the demand is lower, much more than the futures market.

“Physical prices have been weaker than futures have been suggesting for several weeks,” said Lachlan Shaw, head of commodities research at National Australia Bank (OTC :).