Oil drops as Covid-19 pandemic setbacks in India, Canada menace demand

Oil fell as the pandemic worsened in key regions, with Indian cases spiking and Canada’s most populous province declaring a state of emergency just as OPEC+ prepares to add supply over the coming months.

West Texas Intermediate sank as much as 0.9%, snapping a two-day gain. India, the world’s third-biggest oil importer, reported a record number of daily coronavirus cases above 126,000, with states facing a vaccine shortage. In Ontario, officials issued a stay-at-home advisory that’ll remain in place for four weeks to tackle a new, more dangerous wave. Elsewhere, the Tokyo government is weighing stricter curbs as a more contagious variant spreads.

Crude has traded in a narrow band around $60 since mid-March. Although signs of improving vaccine-aided consumption have supported prices, fresh Covid-19 outbreaks and renewed lockdowns have acted as a counterweight. Against that mixed backdrop, the Organization of Petroleum Exporting Countries and its allies have announced a roadmap to ease oil production curbs over the three months to July by restoring more than 2 million barrels a day.

“Prices are likely to be pressured in the short term as the worries surrounding the resurgence of Covid-19 are not going away anytime soon,” said Will Sungchil Yun, a senior commodities analyst at VI Investment Corp. in Seoul.

State-run refiners in India are already looking to buy less crude from Saudi Arabia, with demand poised to dip amid the resurgence of Covid-19. The steep jump in infections from February, when the country reported around 11,000 daily infections, has forced states to reinstate curbs. Maharashtra, -- which includes Mumbai, the financial capital -- has ordered private companies to work from home, and shut malls and restaurants through April.

Still, in the US there are signs of improvement. Oil inventories hit a five-week low, and while gasoline holdings rose, a gauge of demand continued upward, according to an Energy Information Administration report on Wednesday. In addition, refineries are operating at 84% of capacity, rising above 15 million barrels a day for the first time in more than a year, the EIA said.

Federal Reserve policy makers signaled that the central bank will go on supporting the US economy to safeguard the recovery, buttressing the outlook for energy consumption. Minutes from their last meeting showed that officials see some time before conditions would be met for tapering.

Investors are also tracking the potential fall-out from worries that AstraZeneca Plc’s Covid-19 vaccine causes rare blood clots, with reviews by U.K. and European Union regulators finding potential links. These concerns “will probably hinder efforts for wider vaccination usage, while we continue to see the number of cases rising globally,” said VI Investment’s Yun.

Brent’s prompt timespread was 37 cents a barrel in backwardation. That’s a bullish pattern, with near-term prices at a premium to those further out, but it’s down from 54 cents a month ago.