Oil slips as Covid-19, demand concerns weigh ahead of supply report

Melbourne: Oil prices slid in early trade on Thursday on fresh worries about weakened fuel demand, after England clamped down on travel and China also sought to limit Lunar New Year trips to stem the surge in COVID-19 cases.

U.S. West Texas Intermediate (WTI) crude futures fell 12 cents, or 0.1%, to $52.72 a barrel at 0228 GMT, erasing some of Wednesday's gain while Brent crude futures fell 16 cents, or 0.3%, to $55.65 a barrel, after losing 10 cents on Wednesday.

"It looks like the market's really paying attention to some of the demand concerns. The one which has really taken over more than others is what's going on in China," Reuters quoted Commonwealth Bank Commodities Analyst Vivek Dhar as saying.

Due to a pick up in U.S. crude exports and a drop in imports, the analysists claim that the market had been supported earlier this week by a surprisingly large decline in U.S. crude stockpiles in the week to Jan. 22.

According to Reuters, the Energy Information Administration reported on Wednesday that oil inventories dropped by 9.9 million barrels, the most since July, to their lowest since March.

Gasoline stockpiles rose and distillate fuel inventories declined amid slightly lower refinery runs. However attention is now focusing on to demand concerns amid a rise in COVID-19 infections with contagious new variants.

"The economic backdrop remains uncertain as governments struggle to fight off the spread of COVID-19," ANZ Research said in a note.

England, in lockdown since Jan. 4, on Wednesday clamped down on travel, requiring people arriving from high-risk COVID-19 countries to quarantine for 10 days and barring outbound trips for all but exceptional reasons.

More concerning is China, analysts said, whose increasing fuel demand supported the market last year.

The analysts have said that the country is now facing a surge in coronavirus cases as it heads into its what is normally the busiest travel season of the year, the Lunar New Year holiday.

According to the Chinese Ministry of Transport, the number of trips that will be taken will be up 15% from last year, when the virus was raging, but down 40% from 2019.

"Flights out of Shanghai are already being cancelled . China -- they were the ones supporting the market. If you have issues forming in China, that really puts a brake on the demand story for now," Dhar said.

(with minor edits from Reuters)