Oil prices dropped nearly 2% today, adding to steep losses from the previous session, as a new strain of the coronavirus in the UK triggered concerns over fuel demand recovery.
The fast-spreading new coronavirus strain has shut down much of Britain, and has prompted several countries to close their borders to British travellers and freight.
Brent crude futures were down 88 cents, or 1.7% to $50.03 a barrel this morning, while US West Texas Intermediate (WTI) crude futures fell 92 cents, or 1.9%, to $47.05 a barrel.
Both benchmark contracts slid nearly 3% yesterday, partly erasing recent strong gains on the back of the rollout of Covid-19 vaccines, seen as key to easing mobility restrictions.
After the UK government warned that a new variant of the virus seemed to be spreading much faster than previous kinds, India, Pakistan, Russia, Jordan and Hong Kong joined European countries in suspending travel from Britain, and Saudi Arabia, Kuwait and Oman closed their borders completely.
"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, so the selloff was inevitable.
With the US dollar rising as a safe-haven currency, US-dollar priced oil is also less attractive for buyers holding other currencies, which added to pressure on prices.
Traders will be keeping a close eye on US crude inventory reports, due later in the week, to pick up cues on the near-term market.
A Reuters poll of analysts, conducted ahead of reports from the American Petroleum Institute later today and the Energy Information Administration tomorrow, projected US crude stocks have likely fallen by 3.3 million barrels in the week to December 18.
