Oil Steady as Virus Pessimism Balanced by Stimulus
(Bloomberg) -- Oil steadied -- after posting its first weekly loss since October -- as pessimism over a new strain of Covid-19 that’s threatening more travel restrictions was balanced by the passage of a U.S. stimulus bill into law.
Futures in New York traded near $48 a barrel after sliding 1.8% last week. Tougher restrictions were extended to much of England to try and stem the virus mutation, while American officials warned of a post-Christmas surge of infections. Japanese industrial production missed analyst expectations to come in unchanged last month from October, more evidence that the resurgent pandemic is stalling the economic recovery in some parts of Asia.
Crude pared losses of as much as 1.5% after President Donald Trump signed the long-awaited bill containing $900 billion of virus relief that’s expected to boost energy demand in the world’s largest economy. Trump had previously expressed his displeasure with the package that Congress approved last week.
Oil is finishing the year on a somber note as the short-term demand risk of more travel restrictions outweighs optimism over vaccine rollouts, which are already underway and will eventually boost energy demand. The OPEC+ alliance will also return 500,000 barrels a day of output to the market from January.
“I see a very quiet market from now until the end of the year, but the direction for the next couple of days will be downward” due to the new virus strain, said Howie Lee, an economist at Oversea-Chinese Banking Corp. “Since it’s nearing the year-end, traders are just happy to close their books.”
Crude’s futures curve is reflecting the pessimism. Brent’s prompt timespread is 5 cents a barrel in contango, a bearish market structure where near-term prices are cheaper than later-dated ones. The spread was as much as 13 cents in backwardation earlier this month.
President Trump, meanwhile, has raised geopolitical tensions in the Middle East, accusing Iran of being responsible for a rocket attack near the U.S. embassy in Baghdad. The Islamic Republic’s Foreign Ministry said the claims were baseless. The country’s oil minister said this month that Iran was planning to double its production in 2021, which will clash with OPEC+ efforts to gradually increase supply without flooding the market.
© 2020 Bloomberg L.P.
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