A pump jack
Paul Ratje / AFP via Getty ImagesOil prices slumped on Tuesday, with U.S.-traded crude again falling below $60. Signs of weaker fuel demand in Europe appear to be weighing on prices, as a rise in Covid-19 has forced some countries to restrict travel.
“The risks of the Covid-19 pandemic are very real and as most of Europe remains on lockdown ahead of Easter, road fuel demand is set to take a major hit in an otherwise busy season,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy.
Brent crude futures were down 4.1%, to $62.00 a barrel. West Texas Intermediate crude futures, the U.S. benchmark, fell 3.9%, to $59.15 a barrel. Crude had rallied for two days after a long slump last week.
Oil stocks fell, with Chevron (CVX) dropping 0.5%.
Oil prices have been boosted by the low supply of crude currently on the market, because of OPEC’s decision to maintain production cuts and the slow recovery of U.S. oil production. But for oil prices to rise sustainably, there will need to be more help from the demand side.
The picture there is mixed. Gasoline demand in the U.S. was just 1% below pre-pandemic levels as of earlier this month, according to Patrick DeHaan of GasBuddy.
U.S. air travel is recovering, too. The number of passengers moving through TSA checkpoints rose 15% week over week. Compared with 2019, passenger volume is still down 45% but that is better than the 58% drop in February, according to Tudor Pickering Holt.
Looming European restrictions, however, will likely hurt gasoline demand elsewhere. Tonhaugen expects an Easter lockdown in Germany to reduce gas demand by 1.1 million barrels a day.
“The previous downturn during November 2020-January 2021 sent monthly road fuel demand down by more than 30%, and as much as 50% from peak-to-trough on a daily basis,” he said. “This is just Germany and road fuels, but the oil market is concerned this will not be an isolated case in Europe, and more spring setbacks are across the corner.”
And the International Energy Agency released a report last week forecasting that gasoline demand will never again hit pre-pandemic levels because of the rise of electric vehicles. Gas-powered cars are also getting more efficient, and gas mileage standards will likely rise, so even if the shift to electric cars takes a while, fuel efficiency should improve (though the recent rise in monster pickup truck sales is working in the opposite direction).
Write to avi.salzman@barrons.com
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Oil Slumps Below $60 Again - Barron's
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