Oil drops as new coronavirus strain triggers demand recovery fears

Oil prices fell on Tuesday, extending sharp losses overnight. The rapid spread of a new strain of the novel coronavirus in the United Kingdom prompted several countries to close their borders to British travelers and freight, Report mentions, citing Prime.

Brent crude was down 0,51 %, at $50.65 a barrel. West Texas Intermediate (WTI) crude for delivery in January fell 0,65% to settle at $47.79 per barrel.

A day earlier, the oil market experienced a pronounced selloff, the fall in oil prices reached about 5-6%, the cost of Brent fell below $ 50 per barrel for the first time since December 15.

The drop followed news from the UK that a new strain of coronavirus has been detected in the country. The Kingdom confirmed that the coronavirus's detected variant is spreading at a faster rate and requires the population to be even more careful. Against this background, several countries have restricted transport links with the UK. Concerns about the economic recovery weighed on expectations for oil demand.

"The nightmare before Christmas scenario has set in, with a combination of the 'mutant virus' compounded by Brexit angst," said Stephen Innes, chief market strategist at Axi, referring to doubts over whether UK Prime Minister Boris Johnson can secure a post-Brexit trade deal with the European Union.

Innes said the oil market had been overbought, with long positions outweighing short positions by around 4 to 1, so the selloff was inevitable.

With the US dollar rising as a safe-haven currency, U.S.-dollar priced oil is less attractive for buyers holding other currencies, which added to pressure on oil prices.

"The downside risks are greater than the upside until we better understand how politicians are going to react in 2021 - whether they're going to lock things down again," Innes said.