Oil prices have declined this week.
Apu Gomes/AFP via Getty ImagesAfter rising steadily for weeks, oil prices have reversed this week, falling sharply on Thursday and continuing to decline on Friday. The reversal threatens to derail one of the most popular trades of 2021—a bullish bet on oil and related stocks.
Vaccines protecting against Covid-19 have proven effective, but the rollout has been spotty around the world, and new variants have led to restrictions on movement in some places. The oil boom has been predicated on a grand reopening of the global economy, but the reality may not be so smooth.
Bjornar Tonhaugen, head of oil markets at Rystad Energy, wrote that the decline removes “the excess froth that oil’s valuation had gathered.” The price has been propped up by OPEC’s supply cuts, but the continued demand recovery for oil remains tenuous.
“Vaccine skepticism remains, several European countries are extending or re-imposing lockdowns and even vaccine distribution is not as swift and smooth as the world had planned for,” he wrote.
Europe is seeing a new wave of Covid-19 cases, and France imposed new restrictions on trips outside the home. Germany may be forced to stall its reopening, too, as cases rise.
On Friday, Brent crude futures were down 1.1% to $62.56 per barrel. West Texas Intermediate crude futures, the US. benchmark, fell 0.9% to $59.45, leaving them on track for their sixth straight decline. WTI had dropped 7.1% on Thursday, the largest drop since oil futures went negative for the first time ever on April 20, 2020. The last time WTI crude futures settled below $60 was on March 2, when they closed at $59.75.
Oil stocks were falling too. Exxon Mobil (XOM) is down 9% this week. Smaller oil companies are down even more, with Laredo Petroleum (LPI) falling 21%.
That said, analysts expect buyers to get more interested in oil around current levels.
“Significant weakness from here seems unlikely since the short-term hit to demand outlook should be temporary and OPEC+ production could stay steady for another month,” wrote OANDA analyst Edward Moya on Thursday.
Write to Avi Salzman at avi.salzman@barrons.com
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Oil Prices Keep Falling as the Reopening Hits Obstacles - Barron's
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