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MELBOURNE (Dec 22): Oil prices fell on Tuesday, spreading heavy losses overnight as the rapid spread of a new strain of the novel coronavirus in the UK led several countries to close their borders to travelers and British goods.
US West Texas Intermediate (WTI) crude futures fell 30 cents, or 0.6%, to $ 47.67 a barrel at 0156 GMT, while Brent crude futures fell 26 cents, or 0.5 %, at $ 50.65 a barrel.
Both referral contracts fell nearly 3% on Monday, partially erasing recent strong gains thanks to the launch of COVID-19 vaccines, seen as key to easing mobility restrictions.
After the UK government warned that a new variant of the virus appeared to spread much faster than previous types, India, Pakistan, Russia, Jordan, and Hong Kong joined with European countries in suspending travel from Britain, and Saudi Arabia, Kuwait and Oman closed their borders completely.
“The nightmare before Christmas scenario has begun, with a combination of the ‘mutant virus’ exacerbated by Brexit distress,” said Stephen Innes, Axi’s chief market strategist, referring to questions about whether the British prime minister Boris Johnson, can secure a post Brexit Trade Agreement with the European Union.
Innes said that the oil market had been overbought, with long positions outpacing short positions by around 4 to 1, so a sell-off was inevitable.
With the US dollar rising as a safe-haven currency, oil priced in US dollars is less attractive to buyers who own other currencies, adding to pressure on oil prices.
“The downside risks are greater than the bulls until we better understand how politicians are going to react in 2021, if they are going to block things again,” Innes said.
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