New COVID-19 strain pushes energy stocks lower

By: Jayson Derrick
Jayson Derrick
Jayson lives in Montreal with his wife and daughter, loves watching hockey, and is on a lifelong quest to… read more.
on Dec 21, 2020
  • The United Kingdom discovered a new strain of the COVID-19 virus that could be 70% more contageous.
  • Expectations for continued or expanded lockdowns in the UK and elsewhere pushed oil prices lower.
  • Some oil and energy stocks were lower by more than 5% on Monday.

The discovery of a new strain of the coronavirus in the United Kingdom contributed to Monday’s selloff in energy and oil stocks, The Wall Street Journal reported.

Oil down 4% amid rising concerns

Brent crude oil prices were down 4.1% at $50.10 a barrel while WTI oil prices were also down 4.1% at $47.31. The weakness is attributed to a new COVID-19 strain that is 70% more contagious.

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The UK government discovered the strain in recent days and took immediate action to impose new restrictions across the country with a focus on London.

Naturally, expectations for stricter lockdowns across the world in reaction to the discovery does not bode well for oil demand. This would mark a reversal in sentiment as oil prices showed nearly uninterrupted upward momentum since the start of November when the first vaccine was confirmed to be effective.

“The new variant of the virus and new travel restrictions have increased anxiety again,” Norbert Rücker, head of commodities research at Julius Baer, told WSJ. “The road back to normal has its bumps and this seems to be the latest one.”

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Notable stock reactions

European-listed oil stocks were down more than their American counterparts. Most notably, BP plc (LON: BP) was down nearly 5% and Total SE (EPA: FP) shares were down nearly 4%.

But Royal Dutch Shell Plc (LON: RDSB) saw its stock down by nearly 6%. The timing of the oil selloff coincided with the company’s announcement that it is writing down its assets by $4.5 billion.

Across the pond, shares of Exxon Mobil Corporation (NYSE: XOM) were down 2.4% while Chevron Corporation (NYSE: CVX) saw its shares trade lower by 1.2%.

What’s next for oil stocks?

Traders and investors are looking for signs of where oil prices are headed and the latest data may point to the downside. Major countries are canceling flights originating from the UK and as the days and weeks pass, other countries could follow suit.

Tamas Varga, an analyst at PVM Oil Associates, told WSJ that the continued rollout of vaccines will “probably put a floor under prices.”

“I don’t believe that the market has turned so bearish just yet that people are willing to sell short, but the downturn you see right now is probably going to be sharp,” he also said.

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