Oil prices slide as Covid delta variant clouds demand outlook
(Bloomberg) --Oil edged lower as traders grappled with the demand implications of a Covid-19 resurgence in several regions and slowing economic growth in China.
Futures in New York fell as much as 1.9% on Monday. New mobility restrictions have been introduced in parts of Japan, South Korea and Vietnam to curb the spread of the delta variant, clouding the demand outlook for oil. Meanwhile, China’s economic rebound is reported to have slowed. A stronger U.S. dollar also weighed on prices, making commodities priced in the currency less attractive.
“As the Covid-19 variant continues to hit Asia hard, which is really the key swing demand center, that’s a big, big negative for the complex,” said John Kilduff, a partner at Again Capital LLC.
Fuel consumption in economies such as the U.S. and China has boosted oil prices this year amid tight global supplies. OPEC and its allies have been unable to agree on a supply increase, creating volatility in the market and pushing crude to its first weekly loss since May last week. China’s slowing economic recovery and the spread of the delta variant may threaten the global demand for oil and the commodity’s trajectory so far this year.
China’s growth eased in the second quarter to 8% from the record gain of 18.3% in the first quarter, according to a Bloomberg poll of economists. Retail sales and industrial production are expected to moderate, too.
“There is some weaker Chinese data, but also the rise of the delta variant in Europe is causing some doubts on the demand recovery,” said Hans van Cleef, senior energy economist at ABN Amro.
The delta variant has spread around the world, including in the U.S., which reported the most cases since mid-May. In Europe, officials in the U.K. and France are issuing warnings about new cases and reopenings.
- West Texas Intermediate for August delivery lost 50 cents to $74.06 a barrel on the New York Mercantile Exchange at 10:46 a.m. in New York.
- Brent for September settlement slid 53 cents to $75.02 on the ICE Futures Europe exchange.
Uncertainty over imminent supply from OPEC+ continues to loom over the market. The alliance abandoned meetings last week after a dispute between members over production cuts, and one week later, no deal is in sight.
“They’re going to step up to a degree, it’s a matter of how much, and whether or not it falls apart,” said Kilduff of Again Capital LLC.
The International Energy Agency will provide investors with a snapshot of the market on Tuesday with the release of its monthly report, while OPEC will release its own monthly report on Thursday.
Other market news:
- Trading house Trafigura Group said it is teaming with Haddington Ventures LLC to buy NGL Energy Partners LP’s 71.5% stake in the Sawtooth Caverns natural gas liquids storage facility for about $70 million.
- Saudi Aramco offered full contractual crude oil supply to at least six buyers in Asia for August sales, according to refinery officials who were notified by the producer.
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