Oil prices collapse as new strain of coronavirus causes travel restrictions

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Oil prices fell on Monday after a new strain of coronavirus discovered in the UK triggered new travel restrictions across Europe and fears there are no more lockdowns around the world.

Brent crude oil, the international benchmark, fell 4.1% to $ 50.10 per barrel. The liquidation puts the gauge on track for its biggest one-day drop since October. Futures related to West Texas Intermediate, the main gauge of U.S. crude, fell 4.1% to $ 47.31 a barrel.

Demand for oil is likely to take another hit after a number of countries banned travelers from the UK on Sunday from curbing the spread of a new, highly contagious strain of Covid-19 that has emerged in England. The UK government said the new strain appeared to be spreading 70% faster than previous mutations and placed tighter restrictions on parts of the country, including London.

“The new variant of the virus and the new travel restrictions have again increased anxiety,” said Norbert Rücker, head of commodities research at Julius Baer..

“The way back to normal has its bumps and this appears to be the last.”

Shares of major European oil companies also fell on Monday. BP PLC fell 5.9%, Total SE fell 4.1% and Royal Dutch Shell – which announced on Monday it would reduce its assets by $ 4.5 billion – fell 5%.

Optimism over coronavirus vaccines and a rebound in Chinese economic activity had fueled a sharp rise in oil prices in recent weeks. Brent last week hit its highest level since early March.

The gains came despite warnings from the International Energy Agency that it will be several months before vaccinations start to boost global oil demand. Rising infection levels and a slew of new restrictions mean that the upturn in crude consumption in some wealthy countries in Europe and North America was “regressing” this quarter, the IEA said last week.

The latest measures, with several major countries canceling flights from the UK, offer yet another setback to European oil demand. Traders are breaking bets on the price hike they’ve made in recent weeks, according to Tamas Varga, analyst at PVM Oil Associates.

“I don’t believe the market has gotten so bearish yet that people are willing to short sell, but the downturn you are seeing right now is probably going to be sharp,” Varga said. However, the deployment of vaccinations “will probably put a floor below the prices”, he added.

France, Israel and Canada are among the countries that have banned travelers from traveling to Britain in an attempt to prevent a new, highly infectious strain of the coronavirus that is rapidly spreading in England. Photo: Getty Images

Write to David Hodari at [email protected]

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