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Oil falls as India's COVID wave worsens

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Lucy Harley-McKeown
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Brent crude was 2% lower by mid-morning in London to trade at $64.80 per barrel. Photo: Eric Gay/AP
Brent crude was 2% lower by mid-morning in London to trade at $64.80 per barrel. Photo: Eric Gay/AP

Oil prices plummeted as traders eyed the resurgence of cases of COVID-19 in India with trepidation ahead of a key meeting of the Organisation of Petroleum Exporting Countries and allies (OPEC+). 

Bloomberg reported that signs of strains on India's refiners had started to bear out, with Mangalore Refinery & Petrochemicals Ltd. cutting processing rates and the Indian Oil failing to issue an order on West African Crude. 

Brent crude (BZ=F) was 2% lower by mid-morning in London to trade at $64.80 (£46.60) per barrel. Crude (CL=F) was also down 2%, hitting $60.89. This was a further slide from last week, when prices fell around 1%. 

Watch: Indian crematorium overwhelmed as country battles catastrophic Covid-19 surge

A new wave of coronavirus infections in the nation hit a record for the fifth day on Monday as Western nations rallied to send urgent medical supplies to help battle the emerging crisis. 

Japan also declared a third state of emergency in Tokyo, Osaka and two other prefectures, which put further restrictions on nearly a quarter of the country's population.

India and Japan are the world's third and fourth biggest importers of crude.

The pressure coming from India and Japan seems to have outweighed signs of a strong rebound in the US and China — two of the world's highest consumers of oil. 

The moves also came in spite of positive signs for the travel market, after the EU said it would accept visitors who were fully vaccinated. 

READ MORE: European stock markets slip as UK set for fastest growth since second world war

"Markets are balancing the short-term weakness with rising infection rates in India and Japan, with a better medium-term outlook," UBS analysts wrote in a note on Friday.

"In India, the combined consumption of diesel and gasoline, an indicator of economic activity, is estimated to fall as much as 20% month-on-month due to renewed restrictions."

"On the supply side, Libya state oil producers are said to be cutting production due to lack of funding to maintain fields and pipelines, causing overall crude output to fall below 1mb/d for the first time in nine months."

A note from JP Morgan sent out on Friday also predicted that the market was likely to hit a three-year low by August, regaining losses by 2022 as economies reopen and return to growth.

"US crude oil inventories are likely to fall significantly this summer," the note said. 

Watch: Three colonies in India close for a week after families test positive for COVID-19