Oil falls as COVID-19 spike stokes fuel demand fears; still set for big weekly gain

TOKYO (Reuters) – Oil prices fell in early trade on Friday as a spike in the number of COVID-19 infections raised fears for the global economy and near-term fuel demand, but remained on track for a second straight weekly gain amid hopes for a vaccine.

U.S. West Texas Intermediate (WTI) crude futures dropped 40 cents, or 1.0%, to $40.72 a barrel by 0118 GMT, having lost 0.8% on Thursday. Brent crude was down 36 cents, or 0.8%, at $43.17 a barrel, after dropping 0.6% on Thursday.

For the week, both were headed for a surge of about 10%.

U.S. government data also added to pressure, as crude inventories rose by 4.3 million barrels last week, compared with an expected fall of 913,000 barrels.

“Surging cases of coronavirus cases across the globe have fanned concerns over weaker fuel demand,” said Kazuhiko Saito, chief analyst at commodities broker Fujitomi Co.

“Views that it would take time to see any benefit from a COVID-19 vaccine also prompted investors to unwind their long positions,” he said, adding that WTI looks to be headed toward around $39.5 a barrel by a chart.

New coronavirus infections in the United States and elsewhere are reaching record levels and tightening economic restrictions to contain the spread have dampened the prospect of a near-term end to the global health crisis.

Hopes that such a resolution might be on the horizon have risen this week – stoking the jump in both WTI and Brent contracts – after data showed an experimental COVID-19 vaccine being developed by Pfizer Inc and Germany’s BioNTech was 90% effective.

But the International Energy Agency (IEA) said on Thursday that global oil demand is unlikely to get a significant boost from the roll-out of vaccines against COVID-19 until well into 2021.

Analysts say tougher restrictions on mobility to deal with sky-rocketing coronavirus cases mean the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, may hesitate to implement a planned loosening of output curbs agreed in a deal earlier this year.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said earlier this week that the OPEC+ deal could be adjusted if there is consensus among members of the informal producers’ group on a need to hold off on easing production cuts.

“The market has largely discounted a likely delay in tapering of cuts,” Fujitomi’s Saito said.

(Reporting by Yuka Obayashi; Editing by Kenneth Maxwell)