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Oil Down as Uptick in COVID-19 Cases, Production Increase Oversupply Fears

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By Gina Lee

Investing.com – Oil was down on Monday morning in Asia, with an ever-increasing surge in COVID-19 cases globally prompting fuel demand worries amid a series of renewed lockdowns.

Brent oil futures were up 0.41% to $49.05 by 11:05 PM ET (3:05 AM GMT) and WTI futures gained 0.45% to $46.05. However, both Brent and WTI futures gained for a fifth consecutive week during the previous week and remained above the $40 mark.

“Crude pared earlier vaccine roll-out gains after Los Angeles county had another record high in coronavirus cases and South Korea raised their alert level. COVID restrictive measures and lockdowns across the globe seem poised to keep crude prices heavy in the short-term,” OANDA senior market analyst Edward Moya told Reuters.

The restrictions in California will see bars, hair and nail salons and tattoo shops close again. The rising number of cases in South Korea will see the imposition of heightened social distancing rules for Seoul and surrounding areas that will last until at least the end of December.

The southern German region of Bavaria said on Sunday that it will impose a tougher lockdown from Wednesday until Jan. 5.

The new restrictions increase fears of an oversupply, even after the Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed to maintain production cuts at 7.2 million barrels per day (bpd) from January 2021, compared to the current cuts of 7.7 million bpd.

Also adding to the fears and dampening prices was producers’ addition of oil and natural gas rigs for the 11th time in 12 weeks, even as most are cutting expenditures during 2020 and 2021.

Meanwhile, Iran instructed its oil ministry to prepare installations for production and sale of crude oil at full capacity within three months, state media reported on Sunday.

“Adding to the pressure on oil prices is the potential Iranian increase to production in three months. Iran is optimistic the U.S. will ease restrictions if they return back to the 2015 nuclear deal,” OANDA’s Moya added.

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