Oil dips after two-day rally with Covid lingering over market

Oil dipped after the biggest two-day gain since November, with the fast-spreading delta variant of the virus still clouding the demand outlook.

Futures in New York edged toward $67 a barrel after advancing more than 8 per cent over the previous two sessions. Top crude importer China has brought its latest outbreak under control, but Covid-19 continues to spread across other regions, prompting restrictions on mobility.

The dollar also rose for the first time in three days, making commodities priced in the currency more expensive.

Oil’s red-hot rally over the first half of the year has been interrupted by delta, although banks such as Goldman Sachs Group and UBS Group see prices recovering through the end of 2021 as the market tightens. Investors will be watching for any change to OPEC+ output policy when the group meets Sept. 1.

“Oil’s rebound has been swift and quick,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “The recent correction, however, has been one of the steepest this year, highlighting the impact of the delta variant on oil demand.”

Prices

• West Texas Intermediate for October delivery lost 0.6 per cent to $67.17 a barrel on the New York Mercantile Exchange at 12.05pm in Singapore after climbing 2.9 per cent on Tuesday.
• Brent for October settlement slipped 0.5 per cent to $70.71 on the ICE Futures Europe exchange after rising 3.4 per cent on Tuesday.

The outbreak that’s placed Sydney into lockdown for more than two months shows no sign of slowing, with a new daily record of 919 infections in New South Wales. Japan is expected to announce an expansion of its state of emergency to eight more prefectures, while Thailand’s death toll topped 10,000, with more than 8,000 of those coming in the past two months.

The prompt timespread for Brent crude has firmed in a bullish backwardation structure – where near-dated contracts are more expensive than later-dated ones — following some weakness due to the virus resurgence. The spread was 71 cents a barrel, compared with 38 cents on Monday.