The international oil benchmark, Brent crude, fell more than six percent on Tuesday, tumbling as concerns over new pandemic curbs and slow vaccine rollouts in Europe compounded additional crude volumes.
Brent, against which Nigeria’s crude oil is priced, fell by $4.09 to $60.53 per barrel as of 9:07pm Nigerian time on Tuesday, while the United States West Texas Intermediate dropped by $4.01 to $57.55 per barrel.
Both benchmarks traded near lows not seen since February 9, according to Reuters.
According to the international news agency, 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.
The Head of Oil Markets at Rystad Energy, Bjornar Tonhaugen, was quoted as saying, “The road to oil demand recovery appears to be full of obstacles as the world continues to fight the COVID-19 pandemic.
“Oil prices are declining again on Tuesday, proving that last week’s correction was not deep enough and that the market had been trading lately with an excessively bullish sentiment, overlooking the pandemic’s risk.”
Extended lockdowns in Europe are being driven by the threat of a third wave, with a new variant of the coronavirus on the continent.
Germany, Europe’s biggest oil consumer, is extending its lockdown until April 18.
Nearly a third of France entered a month-long lockdown on Saturday following a jump in cases in Paris and parts of northern France.
“The German situation kicked it off, but there’s a lot of crude oil out there. There is no flipside to the oil inventories. We are awash in oil,” said Bob Yawger, director of energy futures at Mizuho in New York.
US crude inventories from the Energy Information Administration are due to be released Wednesday. The data is expected to show a slight draw in the latest week, but gasoline stockpiles are expected to rise, according to analysts in a Reuters poll.
A stronger US dollar also weighed on prices. As oil is priced in US 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 at National Australia Bank.