Oil drops 1% as rising coronavirus cases end supply-led rally

Oil drops 1% as rising coronavirus cases end supply-led rally

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Tokyo: Oil prices fell on Monday, continuing the decline of last week. Driven by production cuts and strong demand in China, oil prices continued their upward trend. With the increase in coronavirus infections, the market’s prospects for recovery are being questioned.

At 0207 GMT, Brent crude fell 45 cents, or nearly 1%, to $54.65 per barrel, after falling 2.3% last Friday. US crude oil fell 43 cents, or nearly 1%, to US$51.93 per barrel, down 2.3% in the previous trading day.

In recent weeks, the benchmark price has risen due to the introduction of the COVID-19 vaccine and the unexpected cut of the world’s largest oil exporter, Saudi Arabia. However, the continuous emergence of new infections around the world makes people doubt how long the demand will last.

U.S. drillers added further pressure by putting more oil and natural gas rigs to work for an eighth consecutive week last week because rising prices have made production more profitable. Still, the number of operating rigs is less than half of the level of a year ago. [RIG/U]

“Shale producers have indicated they will continue to keep their spending under control,” ANZ Research said in a note. “The economics also don’t favour a surge in drilling, with half of the industry still uneconomical.”

U.S. shale producers have quickly responded to market gains in recent years, winning market share as Saudi Arabia and other major producers such as Russia have cut production in an attempt to support global oil and gas prices.

In China, where new COVID-19 infections have been rising, more than 28 million people are in lockdown as Beijing tries to avoid a resurgence of the coronavirus in the country where it was first discovered. 

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