By Geoffrey Smith
Investing.com -- Crude oil prices fell on Monday as signs of extreme volatility in equities markets driven by ultra-exuberant retail investors stoked fears that risk assets in general could be overheating, especially in view of the near-term challenges from the Covid-19 pandemic.
By 11:35 AM ET (1635 GMT), U.S. crude futures were down 0.3% at $52.10 a barrel, while Brent crude, the international benchmark, was down 0.1% at $55.22 a barrel. Both blends were, however, comfortably off intraday lows.
U.S. Gasoline RBOB Futures were up 0.6% at $1.5535 a gallon.
Economists have begun to talk openly about the likelihood of double-dip recessions in Europe and Japan as a result of the winter surge in the coronavirus. Moreover, lockdowns in Hebei and other regions of China have led to fears over the path of demand from the world's biggest oil importer.
Despite the setback, a number of factors indicate the market is in decent health. Data from Bloomberg showed that crude in floating storage, which ballooned when onshore storage tanks filled up amid last year's collapse in consumption, are back to their lowest in over 10 months, a mere 15 million barrels above pre-pandemic levels. Moreover, the premium usually offered for spot cargoes over futures prices is returning to more familiar ranges. The calendar spread between the front-month futures contract and the second-month contract for Brent widened to 20c overnight in London.
A survey by Petro-Logistics also suggested that output from the Organization of Petroleum Exporting Countries will fall in January, with Nigeria, Libya and Iraq accounting for the biggest drops. Exports from Libya have suffered from the temporary occupation of key facilities by guards seeking what they claim are overdue wages. The legitimacy of such claims is hard to assess. Petro-Logistics estimated that exports from OPEC are down by an average of 808,000 barrels a day so far this month.
Finally, the risk of the market being overbought, after weeks in which traders bought into the narrative of a global economic rebound, appear slightly smaller after Commodity Futures Trading Commission data on Friday showed a drop in net speculative long positions to their lowest since November.
On the downside, Europe in particular is under pressure to extend and tighten its restrictive measures on travel and economic life, prompting fears of a double-dip recession. Ifo's closely-watched survey of German business confidence turned down sharply this month, according to its survey released earlier Monday. France's government has also confirmed weekend reports that it's considering a new nationwide lockdown, while the U.K. government is looking at tightening border controls and quarantine restrictions again in order to stop new strains of the virus spreading locally.