Oil tumbles as new Covid-19 virus strain revives demand worries

Oil prices tumbled on Monday as a fast-spreading new coronavirus strain that has shut down much of Britain and led to tighter restrictions in Europe sparked worries about a slower recovery in fuel demand.

Brent crude was down $2.23, or 4.3%, to $50.03 a barrel by 1308 GMT while U.S. West Texas Intermediate (WTI) crude was down $2.10, or 4.3%, to $47.00 a barrel.

Both contracts had fallen more than $3 earlier in the session, their biggest daily drop in 6 months.

"Reports of a new strain of the coronavirus has weighed on risk sentiment and oil. New mobility restrictions across Europe are also not helping as European oil demand will suffer," said UBS oil analyst Giovanni Staunovo.

"Investors need to be mindful that the road to higher oil demand and prices will remain bumpy," he added.

Brent climbed above $50 last week for the first time since March amid optimism stemming from the rollouts of COVID-19 vaccines.

But a new COVID-19 strain, said to be up to 70% more transmissible than the original, has caused renewed fears about the virus that has killed about 1.7 million people worldwide.

More countries closed their borders to Britain on Monday, causing travel chaos and raising the prospect of UK food shortages. 

"The new strain of the coronavirus in the UK has shown us that the vaccine optimism holding Brent above $50 per barrel could be deflated in a fleeting moment," said Rystad Energy's analyst Louise Dickson.

The new virus strain has already been detected in other countries, including Australia, Netherlands and Italy.

Russian Deputy Prime Minister Alexander Novak said the new virus strain had an impact on oil prices, adding that recovery of global oil markets was happening slower than earlier expected and could take two to three years.

The negative sentiment completely overshadowed a weekend deal among U.S. congressional leaders for a $900 billion coronavirus aid package, and the rollout of a new vaccine in the United States on Saturday.

Adding to pressure, the U.S oil and gas rig count, an early indicator of future output, rose by eight to 346 in the week to Dec. 18, the highest since May, Baker Hughes said, reflecting crude prices that have traded above $45 a barrel since late November.