Oil drops on China fuel demand
Oil prices fell on Wednesday as analysts reduced their forecasts for Chinese fuel demand due to mobility restrictions. That is due to the spread of the highly infectious Delta variant of the coronavirus, which is cancelling out a positive outlook for US fuel demand.
West Texas Intermediate crude futures in the United States fell 18 cents, or 0.3 per cent, to $68.11 per barrel, after rising 2.7% the previous day. Brent crude futures fell 16 cents to $70.47 a barrel after rising 2.3 per cent on Tuesday.
While both contracts regained their 100-day daily moving average, a technical chart indicator, they did not appear to have enough momentum to stage meaningful recoveries.
Travel curbs
Beijing has implemented travel restrictions to reduce fuel demand in the world’s second-largest oil consumer. It has prompted Goldman Sachs to lower its demand forecast for China for the next two months by 1 million barrels per day. According to the bank, the Delta wave will have a two-month impact on demand, including in China, consistent with previous cycles, most recently in India.
US crude oil
US crude oil and gasoline inventories fell last week, according to industry data. At the same time, the US Energy Information Administration raised its forecast for fuel demand in 2021 and said consumption in May through July was higher than expected, supporting prices.
According to two market sources citing American Petroleum Institute data, crude stocks in the United States fell by 816,00 barrels. In the week ending August 6, gasoline stocks fell by 1.1 million barrels. Both drawdowns were slightly smaller than expected by Reuters polled analysts.
According to Commonwealth Bank commodity analyst, the need for OPEC supply will exceed OPEC supply by 1 million barrels per day in the third quarter and by 300,000 BPD in the fourth quarter of 2021. He believes that a tightening oil market outlook will amplify oil price gains with OECD commercial crude oil stockpiles already returning to pre-COVID levels.
Saudi Arabia’s oil
Aramco announced this week net income would increase by $25.5 billion, or 288 per cent, in the second quarter of 2021. That comes just days after Exxon Mobil announced a $4.7 billion increase in their second quarter, as well as high profits from Royal Dutch Shell, demonstrating the industry’s resilience in the face of adversity.
The Saudi government now expects to reduce the budget deficit, which ballooned during the pandemic. At $75 billion, Aramco’s annual dividend was the world’s largest, and it helped Saudi Arabia fund itself while it was subject to Covid restrictions.
However, if Saudi Arabia is to maintain its competitive advantage in the critical Asian market, it will need to improve its competitive edge. Saudi Arabia is struggling to keep its appeal in the Asian market due to the prevalence of the Delta variant of Covid. That has caused several countries to impose stricter restrictions and cheaper competitors in the region.
