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Brent falls below $80/b amid new lockdowns, stronger US dollar

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(S&P Global Platts) Crude oil futures moved sharply lower Nov. 19 as the market weighed the impacts of new pandemic lockdowns in Europe and a stronger US dollar.

NYMEX December WTI settled down $2.91 at $76.10/b and ICE January Brent moved $2.35 lower to settle at $78.89/b.

Oil demand markers in most major European economies continued to fall in the week to Nov. 15, as governments react to rising COVID-19 cases in most countries while supply chain disruptions continue to drag on activity.

Austria on Nov. 19 announced it would implement a nationwide lockdown beginning Nov. 22. The move comes amid fast rising case numbers across much of western Europe and could herald a wider return of lockdowns that could further blunt demand.

NYMEX December RBOB declined 8.24 cents to $2.2119/gal and December ULSD was 9.06 cents lower at $2.2934/gal.

Germany introduced tighter COVID-19 restrictions on unvaccinated citizens from Nov. 18 after new cases hit record highs, though officials there have so far said a nationwide lockdown remains off the table, and cases have surged in Belgium and the Netherlands.

“Oil markets are once again facing off with their worst enemy, COVID-19 lockdown,” TD Securities analysts said in a note. “News that Austria is entering into lockdown has sent energy prices tumbling as the resurgent mobility and travel driven demand expectations take what could be a notable hit.”

Mobility in Europe’s top five economies in the week to Nov. 15 averaged 13.7% below pre-COVID levels, according to the latest Google data, down slightly on the week and well below a high of 7.2% below pre-COVID levels in mid-September.

US dollar rallies

The ICE US Dollar Index, which had traded lower over the previous two sessions, pushed above 96 in afternoon trading and was on pace for the highest close since July 16, 2020.

“Crude prices continue to get punished as rising COVID cases across Europe threaten the short-term outlook,” OANDA senior market analyst Ed Moya said. “Over the past two weeks, the energy market went from thinking a worsening oil market deficit and global energy crisis could trigger $100 oil prices, to fearing a pandemic relapse in Europe could trigger a blow to the short-term crude demand outlook.”

Crude prices peaked on Oct. 26, with front-month WTI settling at $84.65/b and Brent finishing at $86.40/b. Front-month WTI is now more than 10% below this peak, while front-month Brent has declined around 9%.

This shift in market focus has been reflected in a steep narrowing in forward curve backwardation. The prompt NYMEX WTI backwardation fell to 16 cents/b, levels last seen in late September.

Refined product cracks have also weakened in recent weeks. The ICE New York Harbor RBOB and heating oil cracks versus Brent were down more than $1/b in afternoon trading and were on pace to finish at their lowest since Sept. 30.

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