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NEW YORK: Oil prices fell nearly 3% on Monday as a rapidly spreading new strain of coronavirus that has shut down much of Britain and led to tighter restrictions in Europe raised concerns about a slower recovery in demand for fuel.
Brent crude fell US $ 1.35, or 2.6%, to $ 50.91 a barrel, while US West Texas Intermediate (WTI) crude for January delivery ended the session at US $ 1.36, or 2.8%, at $ 47.74 before maturity.
The more active February WTI contract fell $ 1.27, or 2.6%, to settle at $ 47.97 a barrel.
Both contracts had lost as much as $ 3 at the beginning of the session, their biggest daily drop in six months.
The strength of the US dollar also weighed on oil markets. A strong dollar makes dollar-denominated commodities, such as crude oil, more expensive for holders of other currencies.
“Reports of a new strain of coronavirus have weighed on risk sentiment and oil. New mobility restrictions in Europe are not helping either, as European oil demand will suffer,” said UBS oil analyst Giovanni Staunovo .
“Investors should be aware that the road to higher oil demand and prices will remain bumpy.”
Brent surpassed $ 50 last week for the first time since March, fueled by optimism stemming from COVID-19 vaccines.
But a new strain of COVID-19, said to be up to 70% more transmissible than the original, has renewed fears about the virus, which has killed around 1.7 million people worldwide.
More countries closed their borders to Britain on Monday, causing travel chaos and raising the outlook for food shortages in the UK.
“The new strain of coronavirus in the UK has shown us that vaccine optimism keeping Brent above $ 50 a barrel could deflate in a fleeting moment,” said Louise Dickson, an analyst at Rystad Energy.
The new strain of the virus has already been detected in other countries, including Australia, the Netherlands and Italy.
Russian Deputy Prime Minister Alexander Novak said the new strain had an impact on oil prices, adding that the recovery in global oil markets was occurring more slowly than expected and could take two to three years.
“Travel restrictions over the next several weeks will complicate OPEC + plans to gradually increase production,” said Edward Moya, senior market analyst at OANDA in New York.
“The monthly meetings will be very tense and will keep oil prices volatile until the spread of the virus is under control in both Europe and the United States.”
The negative sentiment largely overshadowed the launch of a new vaccine in the United States, a deal between US Congressional leaders for a $ 900 billion coronavirus aid package, and European regulatory approval on Monday for the use of the COVID-19 vaccine jointly developed by the American company Pfizer. Inc and its German partner, BioNTech.
The approval by the European drug regulator puts the region on track to begin inoculations in a week.
– Reuters
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