Oil sheds 1% as coronavirus resurgence sparks demand concerns

An aerial view shows pumpjacks in the South Belridge Oil Field on April 24, 2020 near McKittrick, California.
David McNew | Getty Images

Oil prices slipped on Monday as the positive impact from COVID-19 vaccine news and an OPEC+ deal on oil production cuts was undermined by surging coronavirus cases and heightened tensions between the United States and China.

Brent crude fell 46 cents to settle at $48.79 per barrel, while U.S. West Texas Intermediate crude settled 50 cents, or 1.08%, lower at $45.76 per barrel.

Both oil contracts gained around 2% last week after OPEC+, comprising of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, agreed to increase output slightly from January but continue the bulk of existing supply curbs.

"The beginning of this week is like the morning hangover following a good night out that went a bit too far," said Bjornar Tonhaugen, head of oil markets at Rystad Energy. "With the OPEC deal in the bag, now traders looked back at fundamentals, demand and supply, and they were forced to come back to earth as things are not looking good in the short-term."

Prices also were under pressure after Reuters exclusively reported that the United States was preparing to impose sanctions on at least a dozen Chinese officials over their alleged role in Beijing's disqualification of elected opposition legislators in Hong Kong.

Rising tensions between the United States and China, the world's top oil consumers, have weighed repeatedly on the market in recent years.

Meanwhile, a surge in coronavirus cases globally has forced a series of renewed lockdowns, including strict new measures in the U.S. state of California and in Germany and South Korea.

U.S. gasoline consumption fell during the Thanksgiving holiday week to the lowest in more than 20 years, OPIS said, as lockdowns weighed on fuel consumption.

Elsewhere, Iran has instructed its oil ministry to prepare installations for the production and sale of crude oil at full capacity within three months, state media said on Sunday.

"Adding to the pressure on oil prices is the potential Iranian increase to production in three months," said Edward Moya, senior market analyst at OANDA. "Iran is optimistic the U.S. will ease restrictions if they return back to the 2015 nuclear deal."