By Joe Wallace and Will Horner
New coronavirus lockdown measures in Europe dragged the region's stocks lower Thursday and threatened to hamper fuel demand, reigniting worries about slowing economic growth around the world.
The Stoxx Europe 600 index fell 2.1%, a third straight loss for the pan-European gauge and its biggest daily drop since Sept. 21. Shares in major oil companies Royal Dutch Shell PLC, BP PLC and Eni SpA posted some of the biggest losses.
Brent-crude futures, the global benchmark of oil prices, ended the day down 0.4% at $43.16 a barrel, after earlier falling as much as 4.1%. Rising coronavirus cases in the U.S. and deadlocked negotiations over economic stimulus have kept oil prices in a tight trading range recently. U.S. crude futures closed down 0.2% at $40.96 a barrel, paring much of their drop after government data showed domestic stockpiles fell more than expected last week.
U.S. crude has stayed around $40 in recent months, with traders concerned that demand will stagnate moving forward.
In another sign of concern about the European economic outlook, the dollar rose Thursday and advanced against the euro and British pound. Months after European authorities wrestled a measure of control over the spread of the novel coronavirus by imposing some of the Western world's toughest restrictions, cases are once again soaring. Governments have responded in recent days with curbs on travel and leisure designed to suppress a second wave.
The restrictions are a far cry from the full lockdowns that brought entire sectors to a standstill this spring. Still, investors and traders said they threaten to tap the brakes on Europe's economic revival and pinch demand for fuels used in transportation and industry.
"European oil demand had been recovering and the concern isn't just about Europe, it's about whether this is going to spread around the world again," said Phil Flynn, senior energy analyst at Price Futures Group. "There are growing concerns about permanent demand destruction."
The U.K. government on Thursday said London would be put on level two of the country's three-tier alert system from Saturday, requiring people to stop mixing with other households indoors. Health Secretary Matt Hancock said infections in the British capital were doubling every 10 days. France on Wednesday declared a state of emergency and imposed a nightly curfew for the Paris region and eight other metropolitan areas across the country.
The lockdowns stand to reduce gasoline, diesel and jet-fuel consumption in the coming months, traders and analysts said. Oil demand in Europe was about 10% lower in the third quarter than a year before, the International Energy Agency said this week.
Corporate debt also sold off in Europe and the U.S. on Thursday. In the credit derivatives markets, the cost of protecting European investment-grade bonds against default over the next five years rose to nearly EUR57,000 annually per EUR10 million of bonds. That is up from just over EUR53,000 annually at Wednesday's close, according to IHS Markit.
Oil prices are particularly sensitive to the outlook for economic growth thanks to the fuel's use in transportation, trade and industry. Demand is recovering apace in Asia, but has stalled in the West partly because of the resurgence of Covid-19.
Some of the world's biggest oil traders expect global demand will remain well below pre-coronavirus levels at least for the next six months. Global demand will fall 5-6% from last year's levels through the winter before picking up in the second quarter if the virus begins to abate, said Russell Hardy, chief executive of Vitol Group, at an industry event Thursday.
"It's going to be a bumpy ride," Mr. Hardy said. "It's going to be tricky over the coming winter in the Northern Hemisphere. There's obviously still a lot of virus around which is allowing...some reduction in that demand recovery."
--Amrith Ramkumar contributed to this article.
Write to Joe Wallace at Joe.Wallace@wsj.com and Will Horner at William.Horner@wsj.com
(END) Dow Jones Newswires