Oil prices fell more than 3% on Tuesday, hit by concerns that new pandemic curbs and slow vaccine rollouts in Europe will hold back a recovery in demand, while a stronger dollar also weighed.
Brent crude futures dropped by $2.20, or 3.4%, to $62.42 a barrel by 0948 GMT. U.S. West Texas Intermediate (WTI) crude futures fell by $2.10, or %3.4, to $59.46 a barrel.
The market structure was also pointing to weakness, with the front-month Brent spread flipping into a small contango for the first time since January.
Contango is where the front-month contracts are cheaper than future months, and could encourage traders to put oil into storage.
“Continental Europe is tightening the coronavirus measures and thereby further restricting mobility,” Commerzbank (DE:CBKG) said.
“This is likely to have a correspondingly negative impact on oil demand,” they added.
Extended lockdowns are being driven by the threat of a third wave of infections, with a new variant of the coronavirus on the continent.
Germany, Europe’s biggest oil consumer, is extending its lockdown until April 18 and asked citizens to stay home to try to stop a third wave of the COVID-19 pandemic.
This comes after nearly a third of French people entered a month-long lockdown on Saturday following a jump in COVID-19 cases in Paris and parts of northern France.
A stronger U.S. dollar also weighed on prices. As oil in priced in U.S. dollars, a stronger greenback makes oil more expensive for holders of other currencies.
Physical crude markets are indicating that demand is lower, much more so than the futures market.