Brent Down 4% as Vaccine Setbacks Undercut Demand Recovery

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Following global equities lower, nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange plummeted in morning trade Tuesday, sending the international crude benchmark below $63 per barrel (bbl) as investors reassess prospects for a second quarter global demand recovery amid renewed lockdown orders in Germany and France joined with surging infections in India and Latin America, dashing hopes for a quick rebound in emerging markets.

Oil investors see the pace of the vaccine rollout as a key indicator of demand recovery for the coming months, with European delays in reaching immunization targets and the lack of vaccine access in much of the developing world casting doubt that there will be a meaningful increase in world oil consumption in the second quarter.

Germany, the European Union's largest economy, announced Tuesday a hard lockdown over the Easter break, delaying its broader reopening plans until at least April 18. That move followed quarantine measures in Paris and nearby regions, which restricted movement for some 20 million people, and renewed lockdown orders in Italy and Poland. Traffic activity across the European Union fell into contraction in early November 2020 amid the second wave of infections and have still not recovered with the continent now facing a Spring resurgence in cases. Further restrictions in the EU could dent global oil demand by as much as 1 million barrels per day (bpd), according to estimates from Rystad Energy.

Investors were further unnerved by a statement from the U.S. National Institutes of Health, which monitors new drug trials, after it said AstraZeneca's newly released study in North America may have contained "outdated information," which will likely delay approval from U.S. regulators in approving the vaccine for distribution.

Oxford's AstraZeneca vaccine has been seen a "vaccine for the world," -- a cheap, one-dose regime, with the vaccine easy to store and transport. However, with hurdles in the United States and eurozone, public confidence in the vaccine might have been undermined, potentially limiting global distribution efforts.

Meanwhile, Asia-Pacific and Latin America regions are facing growing COVID-19 cases, with both Brazil and India, two major oil consumers in the developing world, reporting record-breaking tallies of new infections. Combined, these developments weighed on markets in Asia and Europe overnight, pulling oil and commodity prices lower and boosting the U.S. dollar and Treasury bonds.

Domestically, investors will also focus on the testimony before Congress from Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen, who will speak Tuesday to lawmakers on the fiscal and monetary impact of the $1.9 trillion American Rescue Plan. Both have advocated for the federal government to spend lavishly on stimulus measures amid a lackluster recovery in the labor market. Last week, U.S. central bank pledged to keep interest rates near zero for the next two years and continue with its monthly $120 billion purchases program.

In early trading, May West Texas Intermediate futures plummeted $2.30 to below $60 bbl at $59.29 bbl and the May international crude benchmark Brent contract on ICE declined $2.39 to $62.23 bbl. NYMEX April ULSD futures plunged 5.39 cents or 2.5% to $1.7754 gallon and front-month RBOB contact declined 5.49 cents to trade near $1.9049 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges