Oil prices drop as demand concerns outweigh Suez disruption

London — Oil prices fell on Thursday as a new round of coronavirus restrictions in Europe revived worries about demand, even as tug boats struggled to move a stranded container ship blocking crude oil carriers in the Suez Canal.

Brent crude slid $1.69, or 2.6%, to $62.72 a barrel at 1340 GMT. U.S. West Texas Intermediate (WTI) crude dropped by $1.86, or 3%, to $59.32 a barrel.

Both contracts jumped about 6% on Wednesday after a ship ran aground in the Suez Canal, one of the world’s most important oil shipping routes. The Suez Canal Authority said on Thursday it had suspended traffic temporarily while eight tugs work to free the vessel.

“We believe that the incident mostly creates noise in the market and should remain without any lasting fundamental impact,” said Norbert Rücker, analyst at Julius Baer bank.

Wood Mackenzie’s vice president, Ann-Louise Hittle, said a few days of delays in crude or product travelling through the Suez Canal to Europe and the United States should not have a prolonged impact on prices in those markets.

The impact of the Suez Canal blockade on oil prices is also limited as the destination of most oil tankers is Europe, but European demand is currently weak due to a new round of lockdowns.

“If Europe was in a better state in its COVID-19 battle, then the disruption would possibly create a more prolonged issue but this is not the case. That is why traders today quickly corrected some of the previous day’s gains,” said Rystad Energy’s analyst Bjornar Tonhaugen.

The technical manager of the ship said another effort to re-float the vessel will be undertaken later in the day after an earlier attempt failed. The salvage company said it might take weeks.

Given the persistent demand worries and falling prices, expectations are growing that the Organization of Petroleum Exporting Countries and allies, together called OPEC+, will roll over their current supply curbs into May at a meeting scheduled for April 1, four OPEC+ sources told Reuters.

“Oil markets are unlikely to renew their upward momentum aggressively until OPEC+’s next meeting in early April, which should leave production cuts unchanged,” said Jeffrey Halley, senior market analyst at OANDA.

The global oil market was also under pressure as producers faced difficulties selling to Asia, especially China. Asian buyers instead took cheaper oil from storage while refinery maintenance has reduced demand, industry sources said.

A strong dollar also weighed on oil prices. The dollar hit a new four-month high against the euro as the U.S. pandemic response continued to outpace Europe’s.