The boom in oil prices came to a crashing end on Thursday with futures down 7% as traders realised that Covid’s resurgence in parts of Europe would be negative for demand.
The bloom started going off the boom last week when prices saw the first weekly fall for more than a month. Higher US stocks for last week also hit confidence on Wednesday. Thursday saw those concerns crystalise when several European countries tightened social distancing rules.
Led by Italy, Poland and France, several large European economies have been forced to reimpose lockdowns as Covid infections rise, while vaccination programs are slowing due to concerns about side effects of the AstraZeneca vaccine that was being widely distributed in Europe.
As well, Britain will be forced to slow its COVID-19 vaccine rollout next month due to a supply crunch caused by delays in shipments of millions of AstraZeneca shots from India, according to Reuters.
A rise in the value of the US dollar has also contributed to the oil sell-off. The Aussie dollar slipped back under 78 US cents to trade at 77.65 US cents
The slide in futures prices spilled over into the US with heating oil and petrol futures falling by more than 5%.
Brent futures dropped $US4.72, or 6.9%, to settle at $US63.28 a barrel, while US West Texas International (WTI) crude fell $US4.60, or 7.1%, to settle at $US60 and went lower in early Asian trading on Friday to be close to $US59 a barrel.
Both contracts are down more than 11% since hitting recent highs on March 8 (i.e. they have now corrected).
Reuters said the five-day losing streak is the longest for WTI since February 2020 and for Brent since September 2020.
The sell-off came after speculators built the largest long position in CME-traded US crude futures and options since 2018.
(That means the traders were bullish about prices and had been looking for future price rises. If the price fall continues those long positions will have to be liquidated which will put further pressure on oil prices).
That took the fall for the US session to more than 9% and means ASX listed oil stocks like Santos, Beach, Oil Search and Woodside Petroleum face more downward pressure today and heading into the weekend.
The slide in oil prices comes on top of a weak session on Wall Street where the Nasdaq slumped 3% and the S&P 500 lost 1.5% and the Dow ended in down 0.46%.
The driver for those falls was the kneejerk rise in US bond yields in the wake of the Fed’s stronger economic forecasts but bullish policy stance on no rate moves until 2024.
The yield on the US treasury’s 10-year bond was around 1.71% after rising above $1.75% in the session.
It had ended at $1.645 on Wednesday in New York in the wake of the Fed statement, new forecasts and comments from chair Jay Powell.
All this leaves the ASX 200 starting lower with the futures market pointing to a sharp 43-point fall at the open.
