Oil dipped on Friday, trimming a weekly advance, as the fast-spreading Delta variant of SARS-CoV-2 continues to cloud the short-term demand outlook.
West Texas Intermediate for September delivery fell 0.94 percent to US$68.44 a barrel, narrowing its weekly gain to 0.23 percent.
Brent crude for October delivery dropped 1.01 percent to US$70.59 a barrel, down 0.16 percent week-on-week.
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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 predicted only a transient hit to consumption.
“The news surrounding Delta is a bit worse than we expected, and the short-term view is becoming increasingly concerning as cases rise,” said Jay Hatfield, portfolio manager at AMCP, the InfraCap MLP exchange-traded fund. “Long-term indicators are still relatively bullish on oil, but for the near future, the Delta variant and its hit to demand isn’t looking like it will burn itself out.”
Delta has interrupted a rally that pushed oil prices more than 50 percent higher in the first half of the year, as major economies such as the US began moving again. A critical concern is the flare-up in China, where authorities have taken an aggressive approach to containing the outbreak.
While the overall number of cases in the country is still in the hundreds, the spread of the variant to more than 17 provinces is raising international concerns about China’s near-term mobility.
The oil market’s structure has also weakened. Brent’s prompt timespread narrowed to US$0.39 in backwardation — a bullish signal where near-dated contracts are more expensive than later ones. That compares with US$0.92 at the end of last month.
Global oil demand “abruptly reversed course” last month, falling slightly after surging by 3.8 million barrels a day in June, the International Energy Agency 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 COVID-19 pandemic.
“The market’s been relatively stagnant, and that’s because the reports released this week show conflicting perspectives on exactly where demand is going to go,” Energy Analytics Group LLC director Thomas Finlon said.
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