Oil prices slide amid concern over coronavirus mutation

The latest declines come after oil prices marked seven straight weeks of gains last week

FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant/File Photo
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Oil prices fell on Monday on concern a mutation of Covid-19 discovered in the UK could speed transmission of the virus and lead to more lockdowns across Europe and hit oil demand.

Brent, the global benchmark for two-thirds of the world's oil, slid 3.06 per cent to $50.66 per barrel at 8.44am UAE time, while US crude gauge West Texas Intermediate dropped 2.95 per cent to $47.65 per barrel.

Monday’s declines come after oil prices marked seven straight weeks of gains last week as investors focused on the rollout of Covid-19 vaccines and the finalising of a $900 billion pandemic relief package that was approved by US lawmakers late on Sunday.

“A fast-spreading new coronavirus strain in the UK has raised concerns that tighter restrictions there and in other European countries could stall a recovery in the global fuel demand,” Avtar Sandu, senior manager of commodities at Singapore-based Phillip Futures, said.

The variant, which is reportedly 70 per cent more transmissible than the original, also prompted concerns about a wider spread, forcing several European countries to begin closing their doors to travellers from the UK. The Netherlands and Belgium announced a ban on flights carrying UK passengers, while France said it would bar all people coming from the UK for 48 hours from Sunday night, including freight carriers, whether by road, air, sea or rail.

Last week, US energy firms added oil and natural gas rigs for a fourth week in a row, which increases pressure on prices as additional supply enters the market. The oil and gas rig count, which is an early indicator of future output, rose by eight to 346 in the week to December 18, the highest since May, energy services firm Baker Hughes said in its report on Friday.

"Despite the bullishness in crude oil prices last week, underlying bearish concerns ... had been lurking in the fundamentals. The prospects for additional Iranian and Libyan crude oil on the global market remains negative for crude prices," Mr Sandu said.

Iran is preparing to raise its oil production on speculation the incoming Biden administration will ease sanctions against the country early next year, while Libya's National Oil Corporation (NOC) is ramping up output as hostilities between different factions ease in the North African country. It is targeting production of 1.3 million bpd by the beginning of 2021.

Meanwhile, Opec+, the alliance between Opec and non-member producers led by Saudi Arabi and Russia, vowed over the weekend to take a proactive response to rebalance oil markets as the pandemic continues to hit global demand.

Opec+ producers are currently cutting production by 7.7 million bpd to stabilise oil markets amid the pandemic. The group is set to increase production by 500,000 bpd in January.