Brent crude oil futures fell 42 cents to $55.64 a barrel by 1318 GMT, while U.S. West Texas Intermediate (WTI) dropped 29 cents to $52.62.
Brent’s six-month backwardation, whereby contracts for later delivery are cheaper, fell to its lowest since Jan. 5, indicating bullish sentiment easing.
China, the world’s second-largest oil consumer, reported its biggest daily jump in new COVID-19 cases in more than 10 months.
Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have significant impact for the next few months.
Oil producers face an unprecedented challenge balancing supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, said an official at the International Energy Agency (IEA).
Saudi Arabia, for example, is throttling oil supply to some Asian buyers, refinery and trade sources told Reuters.
“The Saudi cuts are priced in since last week, even a bit more than was reasonable under market conditions, and a rationalisation of prices was overdue,” said Rystad oil market analyst Bjornar Tonhaugen.
“Seeing Covid-19 infections rise in China by the largest margins in a long time is alarming for the market and, combined with strict ongoing lockdowns in Europe, may affect oil demand much more than initially anticipated in the first quarter.”
Despite the coronavirus shock, China’s total crude oil imports rose 7.3% in 2020, with record arrivals in the second and third quarters as refineries expanded operations and low prices encouraged stockpiling, customs data showed.
Also giving a floor to prices, U.S. crude oil stockpiles last week fell more than expected, though gasoline and distillate inventories rose as refiners ramped up output, the Energy Information Administration said.
Raising hopes of increased oil demand was a hefty U.S. COVID-19 relief package, which President-elect Joe Biden is due to unveil on Thursday.
