Oil holds decline as investors track delta’s spread across China

Oil held near $71 a barrel as investors weighed the risk to consumption posed by the spread of the delta coronavirus variant.

West Texas Intermediate was slightly higher after slumping 3.6 per cent on Monday, the biggest loss in two weeks. The highly infectious Covid-19 variant is forcing governments to reimpose or extend curbs, and investors are tracking an uptick in cases in China, the world’s biggest crude market.

Among moves this week, residents in the capital, Beijing, were advised not to leave the city.

In Indonesia, the biggest gasoline importer in Asia, restrictions have been extended in some regions until Aug. 9, President Joko Widodo said late on Monday. Even before that decision, the impact on energy demand was clear as imports of motor fuel fell by about a quarter, while local usage dwindled.

Crude rallied strongly in the first half as the roll-out of vaccines allowed major economies to reopen, boosting oil demand and draining the glut built up during the initial wave of the pandemic. The pace of gains slowed in July as delta began to pose a greater challenge, while the Organization of Petroleum Exporting Countries pushed ahead with restoring more output.

“Oil has defied gravity so far this year, but the delta variant’s impact has started to cap its advance,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “It does look as though Asian oil consumption has started to dither and prices will probably consolidate until there is a clearer picture.”

Prices:

• WTI for September delivery was little changed at $71.30 a barrel on the New York Mercantile Exchange at 11.57am in Singapore.
• Brent for October settlement rose 0.1 per cent to $72.93 a barrel on the ICE Futures Europe exchange.

In China, delta has breached the some of the strictest virus defenses in the world. Authorities reported 61 confirmed cases and 23 asymptomatic infections on Tuesday as the outbreak that originated with a flight from Moscow continues to spread.

Cases were discovered in several regions as well as in Beijing. Elsewhere in Asia, Thailand reported almost 19,000 infections.

Later on Tuesday, investors will get a brace of insights into market conditions. Oil giant BP is due to present quarterly earnings, offering executives an opportunity to comment on the global outlook. In the US, the American Petroleum Institute will issue its weekly report on inventories.

Brent’s prompt time spread was 71 cents a barrel in backwardation. Although that’s a bullish pattern, with near-term prices above those further out, it’s down from 96 cents a barrel one week ago.

Saudi Arabia, Kuwait and the United Arab Emirates, three core OPEC oil exporters in the Middle East, boosted crude shipments to multimonth highs in July. At present, the alliance plans to raise collective output by 400,000 barrels a day each month until all of its halted production has been revived.