The fear and panic brought by the new strain of coronavirus led to the steady drop of oil prices.
February Brent futures in the London futures exchange increased by 0.69% and traded at $ 50.56 per barrel, after falling by 2.6% and reaching $ 50.91 per barrel on Monday.
Meanwhile, February WTI futures at the New York Mercantile Exchange (NYMEX) decreased by 0.79% and reached $ 47.59 per barrel, while a day earlier, it fell by 2.6% and traded at $ 47.97 per barrel. January futures, which expired during the market close on Monday, slipped by 2.8% and closed at $ 46.18 a barrel.
All in all, the drop in oil prices reached 5-6%, and the price of Brent crude collapsed below $ 50 per barrel for the first time since December 15.
The main reason for the decline was the discovery of a new strain of coronavirus in the UK. Initial studies have confirmed that the new mutation is spreading at a high rate and requires even greater caution from the population. In this regard, authorities reacted immediately, setting the most stringent restrictions in London and south-east England. Neighboring countries have also closed their transport links with the UK.
But despite all promptly taken measures, market participants are still full of pessimism and are seriously afraid of the serious consequences of the new strain. Medical experts, however, said that the mutated virus is no more deadly than the previous one.
Analysts also remain optimistic despite the current negative dynamics in oil prices. They predict that the market will grow in the long term.
As for the state of affairs at the moment, they agree that the oil market is overbought, and the ratio of long positions to short positions reaches four to one. In this situation, sell-offs are simply inevitable. Since the beginning of November, oil prices have risen by about a third (from $ 36 per barrel), driven by optimism over the COVID-19 vaccine.
Today, the market is driven by the latest news from the US, which is the approval of the $ 900 billion bailout bill
To add to that, on Monday, the European Commission issued an emergency authorization for the use of COVID-19 vaccines developed by Pfizer and BioNTech. There is no evidence as well that the drug will be ineffective against the new type of coronavirus. And while the risk of a new strain spreading in 2021 is great enough, medical experts hope the existing restrictions will buy time for the vaccine to spread. This, in turn, will help maintain a constructive outlook for the markets until the end of next year.