The crude oil rally is stuttering. Having ceded some 15 per cent in prices in recent months, the rally we saw earlier this year has lost steam.
Despite talk of growing demand, tightening markets, galloping prices and the call by U.S. President Joe Biden to the Organization of Petroleum Exporting Countries and their allies in the OPEC+ to open their taps further, crude markets seem faced with bearish forces.
How long this phase continues is still to be established.
On Wednesday, crude markets got to their lowest level since May, once the U.S. Federal Reserve signalled it was set to start tapering asset purchases within months.
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And the slide continued. Oil prices closed their biggest week of losses in more than nine months with another down day on Friday, Reuters reported. West Texas Intermediate crude for September delivery fell $1.37, or nearly 2.2 per cent, to settle at $62.32 a barrel on the New York Mercantile Exchange. It was the lowest finish since May. The front-month contract marked a weekly fall of 8.9 per cent, according to Dow Jones Market Data. That was the biggest such loss since a drop of more than 10 per cent was reported for the week ended Oct. 30, 2020.
October Brent crude, the global benchmark, lost $1.27, or 1.9 per cent, at $65.18 a barrel on ICE Futures Europe, for a 7.7 per cent weekly fall and the lowest settlement since May.
Several factors seem to align to impact the crude markets negatively. The Delta COVID-19 variant is denting demand globally, with enthusiasm for air travel waning in the U.S. and Japan. The rising number of variant cases in areas where vaccine rates are low is driving transmission of COVID-19, the World Health Organization said. Coronavirus-related deaths have also spiked in the United States over the past month.
U.S. gasoline inventories also rose unexpectedly last week, U.S. federal data showed, adding to concerns about demand. The International Energy Agency also trimmed its oil demand outlook due to the spread of the Delta variant. OPEC, however, is leaving its demand forecasts unchanged – at least for the time being.
Asia’s market is softening with muted buying from China and a move by India to sell oil from its strategic reserves.
OPEC+ also began opening the taps, gradually. And with the U.S. Federal Reserve moving to cool the economy, the U.S. dollar hit a nine-month high on Thursday. The Fed has been buying US$120 billion of assets every month, buoying commodities. The bank’s July meeting minutes show a reversing trend, a potential pullback in its monthly bond purchases.
The surge in the U.S. dollar has also been adding to the declining fortunes of the crude markets.
“We are moving from expectations of a robust deficit to a potential surplus as the variant continues to halt the growth rate of demand,” Bart Melek, head of global commodity strategy at TD Securities, was quoted as saying by Bloomberg.
Despite all the efforts by the OPEC+ to manage markets, oil prices seem in for some battering. The emerging threat of the Delta variant is beginning to take its toll.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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