Oil Steady as Covid Return Casts Shadow Over Demand Outlook

Aug 13, 2021

(Bloomberg) Oil steadied at the end of a volatile week in which the fast-spreading delta virus variant continued to cloud the demand outlook.Futures traded near $69 a barrel in New York after slipping on Thursday. 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. predicts only a transient hit to consumption.

Covid-19 resurgence has interrupted the rally in oil

“This week has laid bare the contrasting views on the impact of the new wave of Covid caused by the delta variant on the world’s appetite for oil,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd in London. “Consensus is a rare commodity.”

Delta has interrupted a rally that pushed oil prices more than 50% higher in the first half of the year as major economies such as the U.S. got moving again. A critical concern is the flare-up in China, where authorities have taken an aggressive approach to containing the outbreak.

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Prices
West Texas Intermediate for September delivery traded down 11 cents at $68.98 a barrel on the New York Mercantile Exchange at 10:59 a.m. London time, after slipping 0.2% on Thursday. Prices are up about 1% this week. Brent for October settlement was little changed at $71.30 on the ICE Futures Europe exchange, after dipping 0.2% on Thursday.

Oil’s market structure has also weakened. Brent’s prompt timespread was 42 cents in backwardation — a bullish signal where near-dated contracts are more expensive than later ones. That compares with 92 cents at the end of July.

Global oil demand “abruptly reversed course” last month, falling slightly after surging by 3.8 million barrels a day in June, the IEA 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 pandemic.

While China and parts of Southeast Asia are seeing a hit to consumption from the virus restrictions, at least one Indian refiner is ramping up crude processing as demand climbs after a devastating wave earlier this year.

Other market news:
Pemex fought tooth and nail to wrest control of Mexico’s biggest private oil find from the companies that discovered it. Now it has found itself without the cash to actually develop the field. Russia’s Rosneft PJSC reported its highest quarterly revenue since 2019 after oil prices rallied and OPEC+ output restrictions were eased. Thailand’s oil giant is suddenly spending billions of dollars on electric-vehicle and renewable-energy companies and tilting its traditional businesses toward chemicals and plastics.

Other market news:

Pemex fought tooth and nail to wrest control of Mexico’s biggest private oil find from the companies that discovered it. Now it has found itself without the cash to actually develop the field.
Russia’s Rosneft PJSC reported its highest quarterly revenue since 2019 after oil prices rallied and OPEC+ output restrictions were eased.
Thailand’s oil giant is suddenly spending billions of dollars on electric-vehicle and renewable-energy companies and tilting its traditional businesses toward chemicals and plastics.