Oil Heads for Worst Week Since March as Delta Ravages Outlook

Aug 6, 2021

(Bloomberg) Oil headed for the biggest weekly loss since March as the spread of the delta coronavirus variant, particularly in key importer China, cast doubt on demand growth.West Texas Intermediate futures rose 0.4% on Friday, but were 6.2% lower for the week. China has imposed a patchwork of increasingly strict restrictions on mobility to fight the spread of the highly infectious Covid-19 variant. Daily cases set another record in Thailand and in Sydney in Australia, where authorities warned the situation in the city could worsen. A surprise expansion in U.S. crude stockpiles has also been bearish for oil.

U.S. oil is poised for its biggest weekly loss since March

After soaring in the first half of the year surging demand, the latest chapter in the pandemic has capped prices of not just oil but some other commodities as well. Investors are awaiting a key U.S. jobs report later Friday for clues on how long the Federal Reserve will continue its stimulus measures.

“Oil market has struggled this week,” said Jens Naervig Pedersen, a senior analyst at Danske Bank A/S. “On the one hand, markets worry about economic implications of the spreading of the delta variant, but on the other, policy accommodation gives a strong backdrop.”

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Prices:
WTI for September delivery was 28 higher at $69.37 a barrel as of 10:48 a.m. in London Brent for October added 35 cents to $71.64 a barrel Prices are 6.1% lower for the week

Despite the weak outlook for demand from Asia, there are some improved metrics in the U.S., where roads have remained busy. Vehicle miles traveled on highways in the week to Aug. 1 match the similar week in 2019, before the pandemic hit, according to the Department of Transportation. Gasoline deliveries to the Spanish market jumped above pre-pandemic levels last month

“It’s hard to not get caught up in the headlines showing rising cases, particularly in China,” said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd. “However, when you take a step back, restrictions are still being eased back across most regions, demand seems to be holding up, and I think the impact on this latest wave should be significantly less than previous ones.”

Related coverage:
Saudi Arabia’s move to push up the cost of its oil in Asia may backfire as an delta outbreak in China damps demand, while the U.S. and Russia offer more competitively priced alternatives. U.S. oil output will only see “small growth” at most next year even as demand returns, the biggest shale explorer said.