Oil erases early gains, settles lower as demand fears weigh

An aerial view of a crude oil storage facility is seen on May 5, 2020 in Cushing, Oklahoma.
JOHANNES EISELE | AFP via Getty Images

Oil declined on Monday, after earlier rising to $52 a barrel, as optimism over the U.S. stimulus package and the start of a European vaccination campaign was counteracted by weak demand and the prospect of higher OPEC+ output.

After U.S. President Donald Trump backed down from a threat to block the $2.3 trillion package, Democrats on Monday will try to push through larger $2,000 relief payments. Europe on Sunday launched a mass COVID-19 vaccination drive.

Brent crude fell 43 cents, or 0.84%, to settle at $50.86 per barrel, after trading as high as $52.02 earlier in the session. U.S. West Texas Intermediate (WTI) crude settled 61 cents, or 1.26%, lower at $47.62 per barrel.

"The signing of the U.S. stimulus bill, with the possibility of an increased size, should put a floor under oil prices in a shortened week," said Jeffrey Halley, analyst at broker OANDA.

Oil has recovered from historic lows hit this year as the pandemic hammered demand. Brent reached $52.48 on Dec. 18, its highest since March.

But the emergence of a new variant of the virus has led to movement restrictions being reimposed, hitting near-term demand and weighing on prices.

Oil remains vulnerable to any further setbacks in efforts to control the virus, said Stephen Innes, chief global market strategist at Axi, in a note.

Also coming into focus will be a Jan. 4 meeting of the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+.

The group is tapering record oil output cuts made this year to support the market.

OPEC+ is set to boost output by 500,000 barrels per day in January and Russia supports another increase of the same amount in February.