- Oil prices fell to a six-week low on Friday amid fears of demand after Austria announced a nationwide lockdown.
- For the first time in more than a year, crude is on a deficit track for the fourth consecutive week.
- The Biden administration is looking at ways to cushion the jump in gas prices, the most consumers have paid at the pump in seven years.
Oil prices fell to a six-week low on Friday as the new Covid lockdown sparked demand concerns, as industry players signal a return to supply.
West Texas Intermediate crude futures for December delivery fell more than 4% to a session low of $75.37, a price not seen since Oct. The contract expires today, with the more actively traded contract for January delivery falling 3.8% to $75.44 per barrel.
International benchmark Brent crude futures traded as low as $78.15 for the first time since October 1.
WTI and Brent are both on losses for the fourth week in a row, their longest streak of weekly losses since March 2020.
WTI traded in the green earlier in the day but fell into negative territory following news of Austria’s lockdown. A demand rebound has been a key driver for oil’s recovery this year, and any signs that it may be melting will spook market participants.
“The market is still basically in a good shape, but if other countries follow Austria’s lead, the lockdown now poses a clear risk to it,” said Craig Erlam, Oanda’s senior market analyst. “A move below $80 could deepen the correction, possibly pulling the price back towards the mid-$70 zone,” he said.
While Friday’s drop is the biggest drop for oil since July, the commodity has been trading lower for the past few weeks. The Biden administration has said repeatedly that it is exploring ways to ease the burden that high oil is putting on consumers as gas prices are hovering around seven-year highs. One option would be to exploit the Strategic Petroleum Reserve for administration.
“If the US presidential administration wants the attention of the oil market, it has now, because all eyes are on Washington whether it will proceed with China’s SPR release with a follow-up coordinated effort to put further downward pressure on oil prices.” Or not. Lewis Dixon, senior oil market analyst at Rystad Energy, said: “The US is publicly examining the oil market, especially OPEC+, after the summer to reduce supply and provide price relief. from, and other importing countries such as China, India and Japan. [are] Joining the chorus.”
That said, analysts note that the SPR likely won’t have a long-term impact of leaving oil.
UBS said in a November 5 note to customers, “While such a decision would drive prices down, SPR can only fill the gap during temporary production disruptions, cannot fix the structural issues of low investment and rising demand.” “
In addition to political adversity, oil is also facing increased supply pressure as producers, including the US, bring production online.
Oil continued to climb higher throughout 2021 with WTI hitting a seven-year high of $85.41 on October 25. Since then, it is down 11.5%. Despite recent weakness, US oil is still up 55% for 2021.