Oil extends drop with rally pausing after bouncing off 2018 high

Oil extended declines in Asian trading after a rally that saw it hit $70 a barrel for the first time since October 2018 faltered.

Futures in New York dropped back below $69 a barrel on Tuesday after closing 0.6 per cent lower in the previous session. While prices have eased, there’s confidence in the demand outlook as vaccination rates accelerate and mobility climbs. BP is predicting a strong recovery, and traffic in a number of European cities was as busy as in 2019 for the first time since the pandemic.

“It’s just a case of gains being too quick, there is some profit-taking now,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “I don’t put too much weight on the drop. The market is still headed in an upward trend.”

Crude’s advance from the worst of the virus has stalled a handful of times this year, but prices have managed to return to an upward track as overall global demand keeps improving. The Covid-19 comeback in Asia and parts of Latin America is a reminder that the rebound will be bumpy, however.

The market is also watching for any progress between Iran and world powers to revive a nuclear deal, which will likely see the removal of US sanctions and increased Iranian crude flows. Discussions are entering a decisive phase, according to the agency monitoring Tehran’s atomic sites.

Prices

• West Texas Intermediate for July delivery fell 0.9 per cent to $68.58 a barrel on the New York Mercantile Exchange at 12.02pm Singapore time after falling 0.6 per cent in the previous session.
• Brent for August settlement was down 1 per cent at $70.80 on the ICE Futures Europe exchange after losing 0.6 per cent on Monday.

Brent remains in a bullish market structure, despite the drop in headline prices. The prompt timespread for the global benchmark oil was 38 cents a barrel in backwardation – where near-dated contracts are more expensive than later-dated ones. That compares with 40 cents on Friday.

There’s a lot of evidence that suggests that demand will be strong and that US shale producers will remain disciplined, BP chief executive officer Bernard Looney told Bloomberg in St. Petersburg, Russia. His comments echo those of other industry executives encouraged by a robust rebound in key nations.