Oil fell the most in more than a week on Friday as US equities dropped from all-time highs, the US dollar firmed and demand concerns from India continued to muddle the global economic outlook.
Futures in New York slid nearly 3 percent as raw materials and US equities cooled from a scorching rally, while the US dollar climbed, making commodities priced in the currency less attractive.
A viral onslaught in India is the most notable threat to a worldwide oil recovery.
Imports from the South Asian country could fall by more than 1 million barrels a day in the coming weeks, if not three times more, consultant Kpler said in a report on Friday.
However, prices rose last month, with a slew of positive economic data and signs of a budding fuel consumption revival in key economies offsetting the worsening crisis in India.
Futures in New York rose for the week, extending its monthly gain to 7.5 percent.
OPEC and its allies see world consumption rebounding by 6 million barrels a day this year, while Goldman Sachs Group Inc this week said that demand could post a record jump as vaccination rates increase.
The near-certain likelihood of higher fuel consumption in the US, China and the UK have brightened the overall outlook, with traders betting that a steady reopening of economies will continue to improve demand.
“This unbridled optimism on demand is taking a pause” as the crisis in India is getting worse, Commodity Research Group senior partner Andrew Lebow said.
However, OPEC+ can react quickly if demand drops more than expected, giving the market confidence going forward, Lebow said.
“The US is going to lead the demand recovery” and “now that COVID cases are declining across most of western Europe, there’s excitement around a strong pickup in global economic activity and improved air travel in the coming months,” Oanda Corp senior market analyst Edward Moya said.
However, “to take out the March highs, the situation in India needs to be heading in the right direction,” he added.
West Texas Intermediate for June delivery on Friday fell US$1.43 to settle at US$63.58 a barrel, up 2.3 percent for the week.
Brent crude for June delivery on Friday fell US$1.29 to US$66.76 a barrel, up 2 percent weekly.
Goldman Sachs Group Inc this week said demand could post a record jump as vaccination rates increase, while Bank of America Global Research flagged that the summer travel increase could be “significantly more robust” than is being priced in.
“Global oil demand is set for a massive boost in the coming months that will offset Indian demand losses and OPEC’s supply comeback, and that is why prices have been mostly rising during the week,” Rystad Energy head of oil markets Bjornar Tonhaugen said. “This summer’s tightening is not fully priced in yet, and if the India malaise starts to stabilize, oil prices can rally further into a hot, hot summer crude market.”
Oil’s overall advance is in keeping with a broad-based surge in interest in commodities this week, driven by optimism in key economies and tightening supplies of raw materials.
That ha pushed the Bloomberg Spot Commodity Index to the highest level since 2012 in previous sessions.
Some technical gauges of market health reflect the short-term risks to oil demand. The structure of the Middle Eastern Dubai benchmark flipped to a slight contango on Thursday, an indication that market tightness might be easing. The bullish backwardation structure in the prompt timespread for Brent crude has also softened in recent sessions from an intraday high of US$0.72 a barrel at the start of the week.
Additional reporting by staff writer
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