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Oil prices slump on renewed lockdowns

By Our Correspondent
March 24, 2021

London: Oil prices slumped on Tuesday on lower demand prospects as Europe´s biggest economy Germany said it would reimpose strict coronavirus containment measures and struggles along with other EU nations to roll out vaccines.

Oil prices fell more than 4 percent on Tuesday, hit by concerns over new pandemic curbs and slow vaccine rollouts in Europe as well as a stronger dollar.

Brent crude futures were down by $2.69, or 4.2, percent to $61.93 a barrel, having hit a low of $61.41. West Texas Intermediate (WTI) U.S. crude futures fell by $2.47, or 4 percent, to $59.06, after falling to as low as $58.47.

Both contracts traded near lows not seen since February 12.

The front-month Brent spread flipped into a small contango for the first time since January.

Contango is where the front-month contracts are cheaper than future months, and could encourage traders to put oil into storage.

"Continental Europe is tightening the coronavirus measures and thereby further restricting mobility," Commerzbank analysts said. "This is likely to have a correspondingly negative impact on oil demand."

Extended lockdowns are being driven by the threat of a third wave of infections, with a new variant of the coronavirus on the continent.

Germany, Europe's biggest oil consumer, is extending its lockdown until April 18 and asked citizens to stay home to try to stop a third wave of the COVID-19 pandemic.

Nearly a third of France entered a month-long lockdown on Saturday following a jump in COVID-19 cases in Paris and parts of northern France.

A stronger U.S. dollar also weighed on prices. As oil in priced in U.S. dollars, a stronger greenback makes oil more expensive for holders of other currencies.

Physical crude markets are indicating that demand is lower, much more so than the futures market.

"Physical prices have been weaker than futures have been suggesting for several weeks now," said Lachlan Shaw, head of commodity research and National Australia Bank.

Events in Europe are "hurting demand projections for crude oil", noted ThinkMarkets analyst Fawad Razaqzada.

"Everything else being equal, it means that growth will be slower to pick up and inflationary pressures are likely to be weaker than previously thought."

Meanwhile, european stock markets were mixed and US stock indices drifted lower after sharp losses in Asia.On currency markets, the Turkish lira stabilised a day after plunging in reaction to news that President Recep Tayyip Erdogan sacked the country´s market-friendly central bank chief, raising concerns about another round of financial turbulence.