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Markets

Oil slips further on Europe demand concerns

  • API report shows surprise drop in US crude inventories.
  • No policy shift expected by US Federal Reserve.
  • IEA says demand won't reach pre-pandemic level until 2023.
Published March 17, 2021
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LONDON: Oil slipped for a fourth day on Wednesday as concerns about weaker demand in Europe outweighed an industry report that showed US crude inventories fell unexpectedly last week.

Several European countries have paused the use of AstraZeneca's COVID-19 vaccine on worries over possible side effects. Germany is seeing rising coronavirus cases, Italy is imposing a nationwide Easter lockdown and France plans to impose tougher curbs.

Brent crude was down 38 cents, or 0.6%, at $68.01 a barrel by 1410 GMT, having pared earlier losses. US West Texas Intermediate (WTI) crude dropped 35 cents, or 0.5%, to $64.45.

"The suspension will not do the bloc's economic and fuel recovery any favours," said Stephen Brennock of oil broker PVM. "The hope now is that Europe can get its sluggish vaccine rollout back on track."

A World Health Organization (WHO) vaccine safety panel on Wednesday said the benefits of the AstraZeneca vaccine outweigh its risks and recommends that vaccinations continue.

Oil prices were also pressured by the latest reports from the International Energy Agency, which said a supercycle is unlikely and demand is not expected to return to pre-pandemic levels until 2023.

"IEA's report has triggered action among oil traders," said Naeem Aslam of Avatrade. "We have seen some selling."

Still, oil has recovered from historic lows reached last year as demand collapsed, buoyed by record oil output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies. Brent reached $71.38 on March 8, its highest since Jan. 8, 2020.

The market gained support, however, from American Petroleum Institute data, which trading sources said Ushowed US crude inventories fell by 1 million barrels last week. Analysts had expected a rise.

Traders will be looking to the official US Energy Information Administration report at 1430 GMT for confirmation of the API figures.

Investors are also looking to the results of the US central bank's Federal Open Market Committee meeting. No policy shift is expected.

A rising dollar ahead of the Fed's announcement was also a headwind for oil because a stronger dollar makes crude more expensive for holders of other currencies.

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