Oil Down as Covid Concerns Hang Over Market

Oil Down as Covid Concerns Hang Over Market
Oil declined, paring a modest weekly gain, as the fast-spreading delta virus variant continued to cloud the demand outlook.

(Bloomberg) -- Oil declined -- paring a modest weekly gain -- as the fast-spreading delta virus variant continued to cloud the demand outlook.

Futures in New York dropped below $69 a barrel after slipping on Thursday. The latest Covid-19 wave is leading to tighter curbs on movement across the globe, although there are mixed assessments on its impact. The International Energy Agency reduced its demand forecasts for the rest of the year, while Goldman Sachs Group Inc. predicts only a transient hit to consumption.

Delta has interrupted oil’s rally after a rapid rebound from the pandemic in big economies such as the U.S. helped drive prices more than 50% higher over the first half of the year. The biggest concern is the flare-up in China, where authorities have taken an aggressive approach to containing the outbreak despite having one of the world’s highest vaccination rates.

“The oil market will likely continue to maintain a nervous watch, especially for a deterioration in China and the U.S.,” said Vandana Hari, founder of energy consultant Vanda Insights. “Yesterday’s IEA report validated fears over a slowdown in second-half demand due to the delta wave.”

Prices

  • West Texas Intermediate for September delivery fell 0.9% to $68.45 a barrel on the New York Mercantile Exchange at 7:30 a.m. in London after slipping 0.2% on Thursday.
    • Prices are up 0.2% this week.
  • Brent for October settlement lost 0.8% to $70.72 on the ICE Futures Europe exchange after dipping 0.2% on Thursday.

Oil’s market structure has also weakened. Brent’s prompt timespread was 40 cents in backwardation -- a bullish signal where near-dated contracts are more expensive than later ones. That compares with 92 cents at the end of July.

Global oil demand “abruptly reversed course” last month, falling slightly after surging by 3.8 million barrels a day in June, the IEA said in its monthly market report on Thursday. The drop in consumption comes as OPEC+ hikes output with a goal to steadily revive all of the production halted during the pandemic.

While China and parts of Southeast Asia are seeing a hit to consumption from the virus restrictions, at least one Indian refiner is ramping up crude processing as demand climbs after a devastating wave earlier this year.

© 2021 Bloomberg L.P.



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