Oil prices dipped by more than 4 percent early on Tuesday, weighed down by concerns about immediate demand and speculators liquidating long positions.
The nearest Brent Crude contract for May was trading at a discount to the next-month contract, the June contract, for the first time since January this year. The contango—the structure in which the front-month price is lower than prices in future months—points to an oversupply on the market. Only the nearest contract was in contango, but the weakness in the backwardation in recent days has exacerbated concerns over near-term oil demand.
Signs have emerged from the physical market that spot oil demand was not as strong as oil futures prices had suggested for more than a month. Those signs emerged days before oil prices crashed last Thursday for the biggest one-day loss since April 2020.
New or extended lockdowns in Europe, including in Italy, France, and Germany, prompted concerns about mobility and oil demand in the next few weeks, while the vaccination programs in many European countries are lagging behind the United States and the UK, for example, in terms of vaccination rates.
Europe’s biggest economy, Germany, is extending its lockdown through April 18, with a stricter lockdown for Easter to “break the exponential growth of the third wave,” Chancellor Angela Merkel said today.
Money managers have also started to pull money off crude long positions, further weighing on oil prices.
“Crude oil getting hit by a second wave of speculative long liquidation after the price recovery failed to take it above Dr. Fibo resistance at $65.25,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, commented on Twitter on Tuesday.
A stronger U.S. dollar further depressed oil prices today, while investors also flocked to haven asset classes such as U.S. Treasuries and shunned riskier assets such as the crude complex.
By Tsvetana Paraskova for Oilprice.com
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