Oil Set for Weekly Loss Amid Inflation Concerns, Covid Flare-Ups

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Oil Set for Weekly Loss Amid Inflation Concerns, Covid Flare-Ups

Sharon Cho
·2 min read

(Bloomberg) -- Oil headed for a the biggest weekly drop since early April as countries in Asia continue to fight persistent Covid-19 outbreaks, highlighting the patchy recovery from the pandemic even as U.S. demand picks up.

West Texas Intermediate fell 0.5%, taking the week’s loss to more than 2%, the most since the period to April 9. Japan plans to extend curbs to more prefectures, China saw its first infections in about a month, and key oil importer India continues to report more than 300,000 cases a day. Crude’s weakness follows a broad retreat in commodities on Thursday amid speculation leading central banks may temper monetary support as inflation picks up.

While oil has rallied this year as the roll-out of vaccines aids demand, the gains have stalled since early March amid virus flare-ups in parts of Asia, especially India. This week’s decline in prices has come despite a positive market assessment from the International Energy Agency that showed the global glut that built up last year has been cleared. In addition, Federal Reserve policy makers signaled continued backing for the U.S. economy.

“The rising cases in India and some parts of Southeast Asia and Latin America illustrate risks to oil demand,” said Victor Shum, vice president of energy consulting for IHS Markit. “But the general market has great expectations for demand to materialize later this year, so prices are likely to be supported in mid $60s to $70 range for Brent.”

The recovery in the U.S. is on a more solid footing, boding well for energy consumption in the world’s largest economy. In the latest sign of progress, President Joe Biden’s administration announced on Thursday that fully vaccinated Americans can ditch masks in most settings.

Elsewhere, India’s largest oil refiner is shopping for crude again after a one-month hiatus, providing some optimism on the country’s demand. Indian Oil Corp. issued three tenders to buy oil for loading in the next two months. The significance of the company’s move will depend on how much it purchases.

In a sign of the the Asian nation’s sustained struggle with the latest outbreak, some local ports, including Karaikal in Pondicherry, have declared force majeure due to staffing shortages.

“The movement of oil, commodities and equities over the last few days were related and tied to fears of inflation and compounded with the shutdown in Colonial Pipeline,” said Shum, referring to the U.S. products pipeline that was forced offline by a cyberattack. It has since started to resume flows.

Brent’s prompt timespread was steady at 17 cents a barrel in backwardation. While that’s a bullish pattern -- with near-term prices above those further out -- it’s down from 49 cents two weeks ago.

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