Demand Worries Drag on Oil Prices
22 January 2021 - 5:48PM
Dow Jones News
By Marco Quiroz-Gutierrez
Oil prices fell Friday, dragged lower by growing worries that
the pandemic will spur greater restrictions on travel and economic
activity.
U.S. crude prices dropped around 1.4% to $52.38 a barrel, on
track to end two sessions of gains. Oil has stayed in a tight
trading range recently as investors weigh worries about crumbling
consumption against large supply reductions.
Prices have increased steadily since the beginning of the year,
with the U.S. benchmark passing $50 a barrel last month for the
first time since early last year. That was when a production fight
between major producers flooded global markets just as the
pandemic's first round of shutdowns sent consumption plunging. An
oil glut threatened to overwhelm storage, sending prices below $0
for the first time.
Signs that major producers intend to continue output cuts, as
well as a faster-than-expected economic recovery in China, have
since powered a rebound. Many traders now say further gains require
an acceleration in demand from increased travel and a broader
reopening.
Denting those hopes in recent sessions: the slow rollout of
vaccines and warnings of ongoing pandemic restrictions. The Biden
administration in recent sessions reimposed mask restrictions,
warned of a mounting death toll and said it could take months to
turn things around.
A quick recovery in China has helped markets globally, but
Robert Yawger, director of energy futures at Mizuho Securities USA,
said increasing rates of infection in China could hurt prices.
"The potential for the virus to blow up and expand above and
beyond the 28 million that are already locked down is a real threat
to demand," Mr. Yawger said.
Oil-field services company Schlumberger Ltd. said Friday that it
would take two more years for oil demand to return to pre-pandemic
levels, but demand could steadily increase in 2021. Supply cuts
from the Organization of the Petroleum Exporting Countries, along
with the Covid-19 vaccine rollout and further economic stimulus,
could still lift prices, the company said.
Analysts are also watching for signs that supply might drop
following the Biden administration's recent steps to stop drilling
on federal lands and waters. An apparent lack of urgency on lifting
sanctions on Iran could also limit global output and support
prices, traders say.
Despite Friday's declines, many still expect oil to climb later
in 2021 as demand recovers. Capital Economics analysts said in a
Friday note that vaccine distributions could spur a pickup in
travel in developed countries in the second half of 2021, boosting
prices.
--
Collin Eaton
contributed to this article.
(END) Dow Jones Newswires
January 22, 2021 12:33 ET (17:33 GMT)
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