Oil price slumps as resurgent Covid in India puts global recovery in doubt

A Covid-19 patient receives oxygen inside a car in a neighborhood outside New Delhi.  Photo: AP Photo/Altaf Qadri

The price of crude oil fell sharply with the deteriorating Covid-19 situation in India exacerbating concerns around the near-term trajectory of the global demand recovery ahead of a key meeting of oil supply nations later this week.

The price of Brent crude — the global benchmark — fell 1.5% to $65.07 a barrel as Indian Oil Corporation looked to sell into the spot market, a potential indication of weak domestic demand. 

Meanwhile, the country’s refiners are being forced to postpone planned shutdowns for maintenance at some plants as workers are either fleeing or falling ill amid the pandemic’s rampant resurgence there.

“Global demand is seeing a setback, with countries like India going into full-scale chaos,” said Phil Streible, chief market strategist at Blue Line Futures in Chicago. 

The risk in India comes despite China and the US recovering strongly from the pandemic.  

It could pose a problem for the Organisation of Petroleum Exporting Countries and its allies, known as Opec+, which have agreed to start adding more supply from May. 

Ahead of their meeting on Wednesday, Opec secretary-general Mohammad Barkindo said that the group sees “positive signals” in the global economy, but that there are factors in the oil market that require ongoing vigilance.

“The latest surge of Covid-19 infections in India prompted a swift return of pandemic-related demand fears,” said PVM Oil Associates analyst Stephen Brennock. 

“Optimism of a sustained recovery in fuel demand has hit a snag,” he said.

In Japan, a third state of emergency in Tokyo, Osaka and two other prefectures began on Sunday, affecting nearly a quarter of the population as the country attempts to combat a surge in cases of Covid-19.

"It is not clear whether India’s surging cases will be enough to prompt the (Opec+) group into action, but the latest increases in cases, particularly in the Asia-Pacific region, are a cause for concern," said StoneX analyst Kevin Solomon.

"The looming wave of fresh Opec+ supply coupled with renewed demand concerns has dented hopes for a meaningful summer price pounce," said Stephen Brennock of oil broker PVM. 

Bloomberg and Reuters