Oil steadied near a three-week low as the rapid global spread of the delta virus variant prompted a reassessment of the demand outlook.
Futures in New York traded below $67 a barrel after sliding almost 4% over the past two sessions. Delta has led to rising infections and renewed restrictions on movement in some regions, including in China where domestic air travel has slumped. Despite the flare-up, expectations are that demand will accelerate and tighten the market through the end of the year.
“China’s Covid Zero strategy means restrictions could continue to widen and tighten, denting oil consumption,” said Vandana Hari, the founder of consultant Vanda Insights. “Delta outbreaks are certainly cause for a revaluation of the earlier anticipated trajectory of the global demand recovery.”
Oil’s rally has been interrupted by the virus resurgence
Delta has raised concerns about the short-term demand outlook and interrupted a rally in oil that saw prices advance more than 50% over the first half of the year. The resurgence is crimping fuel consumption just as the OPEC+ alliance returns more supply to the market that it halted during the pandemic.
The International Energy Agency and the Organization of Petroleum Exporting Countries are scheduled to release monthly reports on Thursday, which should give an indication of how seriously they see the threat to demand from delta.
West Texas Intermediate for September delivery rose 0.2% to $66.62 a barrel on the New York Mercantile Exchange at 10:16 a.m. Singapore time after dropping 2.6% on Monday.
Brent for October settlement lost 0.1% to $68.99 on the ICE Futures Europe exchange after falling 2.4% on Monday.
The oil market structure has also weakened as Covid-19 cases climb. The prompt timespread for Brent was 45 cents a barrel in backwardation — where near-dated contracts are more expensive than later-dated ones. That compares with 92 cents at the end of July.
The number of seats being offered by China’s airlines dropped the most since early in the pandemic as the nation implemented fresh restrictions to contain the latest wave, based on data from aviation specialist OAG. Meanwhile in the US, virus cases surged to the highest weekly level since early February.