Oil Slips on Growing Threat of Delta Variant to Demand

Signage for Royal Dutch Shell Plc at a refinery near the Enbridge Line 5 pipeline in Sarnia, Ontario, Canada. (Photographer: Cole Burston/Bloomberg)

Oil Slips on Growing Threat of Delta Variant to Demand

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Oil dipped 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 0.6% 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. Confirmed Covid-19 cases in the U.S. soared 47% in the week ending Sunday, the largest weekly rise since April 2020.

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.

Oil Slips on Growing Threat of Delta Variant to Demand

Rebounding fuel consumption in economies such as the U.S. and China has boosted oil prices this year amid tight global supplies. Now, the spread of the delta variant is threatening the demand recovery, while OPEC+ remains in a stalemate over near-term production.

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.

The delta variant continues to spread around the world. In Europe, officials in the U.K. and France are issuing warnings about new cases and reopenings. Anthony Fauci, the top U.S. infectious disease specialist, said “ideological rigidity” is preventing people from getting Covid-19 shots and voiced frustration at the struggle to boost vaccination rates in parts of the country.

“The market’s obviously concerned on future demand prospects when you do see the virus variant raging in a lot of key locations,” said Ryan Fitzmaurice, commodities strategist at Rabobank.

Prices
  • West Texas Intermediate for August delivery lost 46 cents to settle at $74.10 a barrel on the New York Mercantile Exchange.
  • Brent for September settlement slid 39 cents to end the session at $75.16 a barrel on the ICE Futures Europe exchange.

On the supply side, OPEC and its allies have been unable to agree on an output increase, creating swings in the market and pushing crude to its first weekly loss since May last week. The OPEC+ alliance abandoned meetings last week after a dispute between members over production cuts, and one week later, no deal is in sight.

“That’s certainly a big uncertainty that the market is facing,” said Fitzmaurice. “We’ve seen volatility increase as a result.”

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:
  • France is resisting the European Union effectively phasing out combustion-engine car sales by 2035, advocating for a more lenient target for the end of the decade and a longer leash for plug-in hybrid models.
  • 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.

©2021 Bloomberg L.P.

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