Oil futures fell sharply Tuesday as record new cases of COVID-19 in India dimmed the outlook for the nation’s economy and energy demand.
That erased earlier support for oil from a halt to crude exports from a Libyan port and overall weakness in the U.S. dollar.
India on Tuesday reported its worst daily death toll of the pandemic, with large parts of the country now under lockdown amid a fast-rising second wave of infections.
India’s Prime Minister Narendra Modi held an address to the nation on Tuesday, which fed concerns surrounding India’s struggle to contain the virus.
News of the address raised concern that “there will be more lockdowns in India,” said Phil Flynn, senior market analyst at The Price Futures Group.
In his address to India, however, Modi ruled out a nationwide lockdown as a measure to curb the pandemic and urged states to ensure that lockdowns are only chosen as the last resort, according to the Hindustan Times.
Still, oil got hit with a “triple whammy of bearish news,” Flynn told MarketWatch.
In addition to worries about India, the European Medicines Agency said its safety committee concluded that a warning about unusual blood clots with low blood platelets should be added to the product information for Johnson & Johnson’s coronavirus vaccine, but said the benefits outweighed the risk.
Meanwhile there are reports of “progress being made in the Iranian nuclear talks,” said Flynn. That could lead to a deal to lift U.S. sanctions, which would allow more oil to enter the global market.
West Texas Intermediate crude for May delivery CL.1, -1.88% CLK21, -1.88% fell by 98 cents, or 1.6%, to $ 62.40 a barrel on the New York Mercantile Exchange, ahead of the contract’s expiration at the end of the session. The most-active June WTI CLM21, -1.83% contract, which will become the front month, lost $ 1.09, or 1.7%, to $ 62.34 a barrel.
Tuesday marks the one-year anniversary of a negative price close for the front-month WTI crude futures contract. On April 20, 2020, the soon-to-expire May WTI crude dropped 306%, or $ 55.90, to settle at negative $ 37.63.
“Now a year later, the strength of the market is a reminder of how low prices can cure low prices,” said Flynn, in daily commentary.
Read Oil prices went negative a year ago: Here’s what traders have learned since
June Brent crude BRN00, -1.28% BRNM21, -1.28%, the global benchmark, was down 76 cents, or 1.1%, at $ 66.29 a barrel on ICE Futures Europe on Tuesday.
The weaker dollar had helped to underpin oil early Tuesday, in addition to forecasts for the latest report on U.S. crude inventories to show a decline as the world’s largest consumer of oil, the U.S., reopens its economy, said Sophie Griffiths, a market analyst at Oanda.
The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was little changed at 91.08 after trading as low as 90.86 and has fallen about 2.3% this month. A weaker dollar can be supportive for commodities priced in the currency, making them cheaper to users of other currencies.
Still, risks remain, with the resurgence of COVID in India, the world’s third-largest importer of oil, “tighter lockdown restrictions could dent the near-term demand outlook for oil,” Griffiths said in a market update.
India reported its worst daily death toll on Tuesday, with the health ministry reporting 1,761 deaths in the past day and 259,170 new infections, according to Reuters.
The U.S. has averaged 67,175 new coronavirus cases a day in the past week, up 4% from the average two weeks ago, but about 50% of U.S. adults have now received at least one shot of vaccine. Meanwhile, the global case tally almost hit a record of more than 750,000 on Sunday and Monday, according to the Washington Post, as India and Brazil remained hot spots.
On Monday, Libya’s National Oil Corporation declared force majeure on crude oil exports from the eastern port of Hariga, with a subsidiary, Agoco, forced to reduce its output due to lack of funding, said Warren Patterson, head of commodities strategy at ING, in a note
The disruption could see the country’s output fall by 280,000 barrels a day, taking it below 1 million barrels a day for the first time since October, he said, after output staged a strong recovery late last year after the lifting of an oil blockade.
Michael Lynch, president of Strategic Energy & Economic Research, however, said he doesn’t expect the Libyan closure to have a significant effect on oil prices.
“The market is used to occasional interruptions in supply and will presume production will resume within a few days at the latest,” he told MarketWatch.
Back on Nymex, May gasoline RBK21, -1.93% fell by 1.9% to $ 2.01 a gallon and May heating oil HOK21, -1.44% declined by 1.5% to $ 1.86 a gallon.
May natural gas NGK21, -0.44% traded at $ 2.74 per million British thermal units, down 0.4%, after tacking on 2.6% on Monday.
The Energy Information Administration will release its report Wednesday on U.S. petroleum supplies for the week ended April 16.
On average, analysts expect the EIA to report a decline of 4.4 million barrels for crude inventories, along with an increase of 800,000 barrels for gasoline supplies and a fall of1.3 million barrels for distillates, according to a survey conducted by S&P Global Platts.