Oil prices tumble as lockdowns stoke recession fears

Posted November 2, 2020 5:48 a.m. EST

— Oil prices fell sharply on Monday as new lockdowns across Europe and record coronavirus cases in the United States slammed the outlook for energy demand.

Brent crude, the global benchmark, fell as much as 5% in early morning trading in Asia, touching levels last seen in May, before paring losses to trade 2% lower at $37.13 a barrel. West Texas Intermediate, the US benchmark, was down 2.49% at $34.90 a barrel.

Decisions by European governments to impose another round of severe coronavirus restrictions is weighing on sentiment. France, Germany and Belgium are going back into nationwide lockdowns, shutting restaurants and non-essential businesses for several weeks and restricting travel. In the United Kingdom, authorities are introducing a lockdown in England that is scheduled to run through December 2.

These four countries consume the equivalent of a little over 6% of global consumption, "so no surprise that we are seeing the market reacting this morning," ING's head of commodities strategy Warren Patterson and senior commodities strategist Wenyu Yao wrote in a research note on Monday.

Economists fear that Europe's economy could contract in the fourth quarter, raising fears of another recession. Despite record GDP growth in the third quarter, the EU economy remains about 4% smaller than it was at the end of September last year.

There are also worries that governments elsewhere will be forced to reimpose restrictions heading into the holiday season. The United States recorded 81,493 new coronavirus cases on Sunday, after reporting 99,321 on Friday, the highest single day number of cases for any country, according to Johns Hopkins University. The US death toll from Covid-19 now stands at more than 230,995, the highest number of fatalities worldwide.

"Fresh worries that politicians worldwide will be pressured to lock down Christmas this year is hitting the oil markets like a ton of bricks," Stephen Innes, chief global markets strategist at Axi said in a research note. "The alarmingly high level of angst in the markets makes it easy for the oil roller coaster to crest rally peaks and head downhill at alarmingly quick speeds," he added.

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