Oil tumbles as new virus strain revives demand fears

“Reports of a new strain of the coronavirus has weighed on risk sentiment and oil. New mobility restrictions across Europe are also not helping as European oil demand will suffer,” said UBS oil analyst Giovanni Staunovo.

Oil prices tumbled on Monday as a fast-spreading new coronavirus strain that has shut down much of Britain and led to tighter restrictions in Europe sparked worries about a slower recovery in fuel demand.

A trader works on the floor of the New York Stock Exchange. (Reuters)

Brent crude was down $2.23, or 4.3%, at $50.03 a barrel by 1421 GMT, while U.S. West Texas Intermediate (WTI) crude fell $2.21, or 4.5%, to $46.89.

Both contracts had lost as much as $3 earlier in the session, their biggest daily drop in six months.

“Reports of a new strain of the coronavirus has weighed on risk sentiment and oil. New mobility restrictions across Europe are also not helping as European oil demand will suffer,” said UBS oil analyst Giovanni Staunovo.

“Investors need to be mindful that the road to higher oil demand and prices will remain bumpy.”

Brent climbed above $50 last week for the first time since March, buoyed by optimism stemming from Covid-19 vaccines.

But a new COVID-19 strain, said to be up to 70% more transmissible than the original, has renewed fears about the virus that has killed about 1.7 million people worldwide.

“The new strain of the coronavirus in the UK has shown us that the vaccine optimism holding Brent above $50 per barrel could be deflated in a fleeting moment,” said Rystad Energy analyst Louise Dickson.

The new virus strain has already been detected in other countries, including Australia, the Netherlands and Italy.

Russian Deputy Prime Minister Alexander Novak said the new strain had an impact on oil prices, adding that recovery of global oil markets was happening slower than previously expected and could take two to three years.

The negative sentiment overshadowed the rollout of a new vaccine in the United States, a deal among U.S. congressional leaders for a $900 billion coronavirus aid package and European regulatory approval on Monday for the use of the COVID-19 vaccine jointly developed by U.S. company Pfizer and its German partner BioNTech.

The approval by Europe’s medicines regulator puts the region on course to start inoculations within a week.

(Reporting by Bozorgmehr Sharafedin in London; Additional reporting by Yuka Obayashi in Tokyo; Editing by Jane Merriman and David Goodman)