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 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.
“Physical prices have been weaker than futures have been suggesting for several weeks now,” said Lachlan Shaw, National Australia Bank’s head of commodity research.