Yemisi Izuora
Oil prices went down on Tuesday, extending sharp losses overnight, as the rapid spread of a new strain of the novel coronavirus in the United Kingdom prompted several countries to close their borders to British travelers and freight.
Subsequently, the U.S. West Texas Intermediate (WTI) crude futures dropped 30 cents, or 0.6 per cent, to $47.67 a barrel, while Brent crude futures fell 26 cents, or 0.5 per cent, to $50.65 a barrel.
Both benchmark contracts slid nearly 3 per cent on Monday, partly erasing recent strong gains on the back of the rollout of COVID-19 vaccines, seen as key to easing mobility restrictions.
After the UK government warned that a new variant of the virus seemed to be spreading much faster than previous kinds, India, Pakistan, Russia, Jordan and Hong Kong joined European countries in suspending travel from Britain, and Saudi Arabia, Kuwait and Oman closed their borders completely.
“The nightmare before Christmas scenario has set in, with a combination of the ‘mutant virus’ compounded by Brexit angst,” said Stephen Innes, chief market strategist at Axi, referring to doubts over whether UK Prime Minister Boris Johnson can secure a post-Brexit trade deal with the European Union.
Innes said the oil market had been overbought, with long positions outweighing short positions by around 4 to 1, so the selloff was inevitable.
With the U.S. dollar rising as a safe-haven currency, U.S.-dollar priced oil is less attractive for buyers holding other currencies, which added to pressure on oil prices.
“The downside risks are greater than the upside until we better understand how politicians are going to react in 2021 – whether they’re going to lock things down again,” Innes said.