Oil Edges Higher After Three-Day Decline Driven by Delta Threat

Saket Sundria
·2 min read

(Bloomberg) -- Oil edged higher after a three-day slide that was driven by the growing threat to demand from the spread of the delta coronavirus variant.

West Texas Intermediate gained 0.2% after losing almost 3% over the previous three sessions. U.S. gasoline consumption fell for a third week, according to a survey by Descartes Labs, while data from China revealed a slowdown in economic activity in the world’s biggest oil importer in July. Meanwhile, demand in Asia’s second-biggest oil consumer, India, is largely holding up.

After a blistering rally in the first half, crude’s advance has been checked in July and August. The delta variant has spurred fresh curbs on mobility in many nations including China, harming energy consumption. Against that backdrop, JPMorgan Chase & Co. has been among bank’s reducing oil price forecasts.

“These periodic corrections are likely to be short-lived and the longer-term trend will still be a move higher,” said John Driscoll, chief strategist at JTD Energy Services Pte. “Signals point to a recovery. Demand is likely to rebound unless these new virus variants result in massive lockdowns.”

While demand has been challenged, the Organization of Petroleum Exporting Countries and its allies including Russia have stayed the course in relaxing the output curbs imposed in the early phase of the pandemic. Daily supplies will rise by 400,000 barrels a day this month. The group is scheduled to meet on Sept. 1 to review the market after U.S. President Joe Biden urged the cartel earlier this month to restore production to help bring gasoline prices down.

China’s Oil Refining Tumbles to 14-Month Low Amid Crackdown

Crude’s decline on Monday reflected concerns over the impact of delta on demand, according to Goldman Sachs Group Inc. Still, that challenge would be transient and the bank said it was standing by a forecast for Brent to hit $80 a barrel next quarter amid a sustained deficit, according to an Aug. 16 note.

Brent’s prompt time spread was 36 cents a barrel in backwardation. While that’s a bullish pattern -- with near-dated prices above those further out -- it is down from 62 cents about a month ago on July 16.

India’s fuel recovery was still intact in the first half of August, with gasoline sales above pre-pandemic levels in 2019. While sales of diesel were 8% lower than in 2019, that’s an improvement on July, when they were down 11%.

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