Oil prices tumble as new virus strain revives demand fears

Oil prices tumbled nearly 3% 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.

Brent crude settled down $1.35, or 2.6%, at $50.91 a barrel, while U.S. West Texas Intermediate (WTI) crude for delivery in January ended the session $1.36, or 2.8%, lower at $47.74 ahead of expiry.

The more active February WTI contract fell $1.27, or 2.6%, to settle at $47.97 a barrel.

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

The strength in the U.S. dollar also weighed on oil markets. A strong greenback makes dollar-denominated commodities like crude oil more expensive to holders of other currencies.

“Reports of a new strain of the coronavirus have 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, which has killed about 1.7 million people worldwide.

More countries closed their borders to Britain on Monday, causing travel chaos and raising the prospect of UK food shortages.

“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.