By Myra P. Saefong and William Watts
Oil futures finished sharply lower Friday, prompting U.S. prices to pare their gain for the week, as investors weighed fresh COVID-19 outbreaks in China, which has been an engine of demand as other major economies were slowed by the coronavirus pandemic.
“Oil market euphoria is unequivocally strong, but market indicators from Asia are mixed,” said Michael Tran, analyst at RBC Capital Markets, in a note.
“China, the global engine of oil demand growth, is wrestling with fresh COVID outbreaks and lockdowns in various regions throughout the country have led to a tapering in discretionary driving patterns,” he said.
China says it is now treating more than 1,000 people for COVID-19 as numbers of cases surge again in the country’s north. Shijiazhuang and the cities of Xingtai and Langfang are under virtual lockdown , confining more than 20 million people to their homes.
“China’s growing health crisis has led to a fall in oil as it is the largest importer of energy in the world,” said David Madden, market analyst at CMC Markets UK, in a market update. “The Beijing administration has put 22 million people on lockdown due to rising COVID-19 cases, so [oil] demand fears are in circulation.”
The global tally for confirmed cases of the coronavirus that causes COVID-19 climbed above 93 million on Friday, according to data aggregated by Johns Hopkins University, while the death toll rose above 1.99 million. The U.S. has the highest case tally in the world at 23.3 million and the highest death toll at 388,705, or more than a quarter of the global total.
Against that backdrop, West Texas Intermediate crude for February delivery /zigman2/quotes/211629951/delayed CL.1 -0.65% fell $1.21, or 2.3%, to settle at $52.36 a barrel on the New York Mercantile Exchange.
Prices based on the front-month contract ended the week with a modest 0.2% gain, their third in a row, after settling Thursday at their highest since February of last year, according to Dow Jones Market Data.
March Brent crude , the global benchmark, lost $1.32, or 2.3%, at $55.10 a barrel on ICE Futures Europe, for a 1.6% weekly fall.
“Crude has seen a resilient run in the first couple of weeks of 2021,” said James Hatzigiannis, chief market strategist at Ploutus Capital Advisors. “However, it is now approaching severely overbought levels.”
This week, “we saw reports of a reduction in the crude oil surplus , increase in refinery activity and demand of gasoline increase, all bullish developments for crude,” he told MarketWatch, but oil prices “have gone up too quickly, a correction is overdue. All bullish developments have been priced in.”
Hatzigiannis pointed out that Chinese demand may drop because the country “strategically increased their reserves” in 2020 when oil prices were historically low.
Meanwhile, some forecasts indicate that U.S. travel “will not return till the third quarter of this year,” he said, adding that he expects to see a significant rise in oil demand sometime in the late spring when infections should start to significantly decline.
Demand should also see a “slight bump” from President-elect Joe Biden’s proposed $1.9 trillion stimulus package , he added.
For WTI, “$50 is a big psychological price level” and it would take a “major bearish development for crude to drop below that level,” said Hatzigiannis.
Given the “combination of the Saudi’s commitment to manage supply and indications that we are starting to see light at the end of the tunnel when it comes to the infections, I think we will stay above $50 for the long term,” he said.
Petroleum products traded on Nymex finished lower along with oil on Friday. February gasoline lost 1.6% to $1.5284 a gallon, with prices 0.9% lower on the week, while February heating oil dropped 1.6% to $1.5929 a gallon, for a weekly rise of nearly 0.9%.
February natural gas settled at $2.737 per million British thermal units, up 2.7% for the session and ending 1.4% higher for the week.