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Oil drops almost 2% as new coronavirus strain renews demand fears

Tuesday, 22 December 2020 | 13:00

Oil prices dropped almost 2% on Tuesday to below $50 a barrel, adding to losses from the previous session, as a new coronavirus strain in the United Kingdom revived concerns over demand recovery.

The detection of the new strain prompted several countries to close their borders to Britain, although a British minister said the UK and France are working to reopen one of Europe’s most important trade routes.

Brent crude was down 72 cents, or 1.4% to $50.19 a barrel at 0915 GMT, while U.S. West Texas Intermediate (WTI) crude fell 76 cents, or 1.6%, to $47.21.

Both benchmarks slid nearly 3% on Monday, partly erasing recent gains driven by the rollout of COVID-19 vaccines seen as key to allowing a return to normal life.

“In the battle between immediate negative concerns and future optimism, the former is now fighting back,” said Tamas Varga of oil broker PVM.

The latest rally culminated in Brent hitting $52.48, its highest since March, on Friday. Some see potential for prices to fall further.

“The environment remains decidedly risk-averse,” said Jeffrey Halley of brokerage OANDA. “Given the scale of oil’s two-month rally, a deeper correction cannot be ruled out.”

Oil gained support from the U.S. Congress approving a $892 billion coronavirus aid package after months of inaction.

In focus will be the latest U.S. oil inventory reports, expected to show crude stocks fell by 3.3 million barrels. The American Petroleum Institute’s report is due at 2130 GMT.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, are set to boost output by 500,000 barrels per day in January. There is no sign yet of any wavering induced by the price drop.

Russian Deputy Prime Minister Alexander Novak on Monday said the rise in output should not result in a glut.
Source: Reuters (Reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by Kirsten Donovan)

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