Oil up but set for 5% weekly drop
Oil prices held steady on Friday, edging away from three-month lows. However, they were still on track for a weekly loss of more than 5% as new lockdowns in countries dealing with the COVID-19 Delta variant outbreak dampened fuel demand expectations. Broader investor risk aversion weighed on oil, with the US dollar surging to a nine-month high, indicating that the US Federal Reserve may reduce stimulus this year.
According to ANZ commodity analysts, the spread of the Delta variant in the context of slowing economic growth and the prospect of tighter monetary policy is causing short-term ripples in the commodity market. Increasing mobility restrictions are causing concern about oil demand.
Brent crude
Brent crude futures rose 24 cents, or 0.4 percent, at $66.69 per barrel at 0635 GMT, after falling 2.6 percent to their lowest close since May on Thursday.
WTI crude futures in the United States for September, which expire on Friday, rose 38 cents, or 0.6 percent, to $64.07 a barrel, after falling 2.7 percent on Thursday. The more actively traded October contract was up 26 cents to $63.76 per barrel.
The recent lockdowns in significant economies worldwide are likely to have harmed economic activity and growth forecasts in the coming months, Margaret Yang, a strategist at Singapore-based DailyFX, agreed.
Japan has extended its emergency lockdown, and confirmed cases are increasing in South Korea, Malaysia, the Philippines, Vietnam, and Thailand, whose industries rely on oil and will impact by the Delta variant.
Delta variant affecting shipping
With its “zero tolerance” coronavirus policy, China has imposed new restrictions affecting shipping and global supply chains. Both the United States and China have imposed tit-for-tat flight capacity constraints. In the meantime, Delta variant outbreaks in Australia and New Zealand have resulted in strict lockdowns. The end of the peak gasoline demand season in the United States and summer vacations in Europe and the United States also expect to reduce oil demand.
At the moment, aviation is the weakest component of global demand. The risk of further domestic and international travel restrictions due to the Delta variant will be a crucial variable for oil over the remainder of H2. Stephen Innes, a managing partner of SPI Asset Management, says that the driving season in the United States is coming to an end.
