Oil prices dropped Monday amid concerns that a surge in COVID-19 cases in India could hamper demand.
Brent crude futures dropped by more than a dollar, or 1.7 percent, to $65.00 a barrel as of 8:30 a.m. ET. U.S. West Texas Intermediate crude futures were down about a dollar, or 1.6 percent, at $61.15 a barrel.
Monday’s dip comes after both benchmarks fell about 1 percent last week.
While some parts of the world, including the US and China, have flashed signs of a strong recovery from the pandemic, the outbreak in India — the third-largest importer of crude oil in the world — is more severe than ever.
Daily new cases of the virus and deaths caused by COVID-19 are at all-time highs in India, prompting the US and other countries to send supplies like supplemental oxygen to support the country.
Bloomberg reported that India’s oil refiners have started to cut production in response. Mangalore Refinery & Petrochemicals has cut processing rates and the Indian Oil Corp. has failed to issue an expected order of West African crude, Bloomberg reported.
Commerzbank analyst Eugen Weinberg told Reuters that traders are also responding to a worsening COVID-19 outbreak in Japan, the world’s fourth-biggest crude oil importer.
Japan on Friday issued its third state of emergency due to the pandemic with new restrictions imposed in Tokyo and three other prefectures. The restrictions stopped sort of a full lockdown but put severe limitations on restaurants, bars and other businesses.
While fresh restrictions and worsening health crises in India and Japan are pressuring oil prices, optimism elsewhere have helped prices run up so far this year.
Both of the benchmark crudes are up about 26 percent since Jan. 1 as mass vaccination campaigns have helped restore some normalcy and business activity, particularly in the US.
Most recently, a top European official said Sunday that the European Union will likely allow vaccinated Americans to travel internationally as soon as this summer, which is expected to give oil prices a boost.
“Markets are balancing the short-term weakness with rising infection rates in India and Japan, with a better medium-term outlook,” UBS analysts wrote in a note to clients on Friday. “In India, the combined consumption of diesel and gasoline, an indicator of economic activity, is estimated to fall as much as 20% month-on-month due to renewed restrictions.”
Adding to the near-term pressure on oil prices is a meeting of the Russian-led Organization of Petroleum Exporting Countries and allies that’s slated to take place on Wednesday. The group surprised investors at its meeting earlier this month when it announced that it would increase oil supply starting in May, which could further hurt the price.
With Post wires