Oil renews decline as US inventories expand, Delta spreads
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Oil renews decline as US inventories expand, delta spreads

Oil renews decline as US inventories expand, delta spreads

The American Petroleum Institute was said to report an 806,000 barrel gain in US crude inventories

Oil

Oil fell after a surprise build in US stockpiles and as investors weighed the impact on demand from the rapid spread of the delta variant.

West Texas Intermediate retreated 0.4 per cent, resuming declines after an advance on Tuesday. The American Petroleum Institute was said to report an 806,000 barrel gain in US crude inventories, according to people familiar with the figures.

The climb would be first since May, if it is confirmed by the Energy Information Administration later on Wednesday. Ahead of that official release, a Bloomberg survey showed that market watchers expect another drop.

Crude has been thrown into retreat since hitting the highest since 2014 earlier this month as the delta variant surged in parts of Asia, and spread in the US and Europe. That challenge has coincided with the Organization of Petroleum Exporting Countries and its allies patching up a row with a pact to boost production from August. Among banks, Goldman Sachs Group Inc. has warned oil will will “gyrate,” and pushed back forecasts for a rally to $80 a barrel.

The latest twist in the coronavirus pandemic has seen the delta variant now account for 83 per cent of all sequenced cases in the US, up from 50 per cent in early July.

In Asia, South Korea and Thailand reported record daily case loads; Japan’s top Covid-19 adviser said new cases in Tokyo, where the Olympics start this week, could hit a record in August; and Singapore will tighten curbs from Thursday.

“The damage to reopenings from the delta variant has certainly dented sentiment across the board when we look at commodities in general, but specifically to the oil markets,” said Wayne Gordon, a strategist at UBS AG Wealth Management. Still, “we would expect that the demand for oil continues to remain relatively robust. And we would expect it to continue to recover.”

The API also reported a 3.31 million barrel build in gasoline inventories last week, even as a Bloomberg survey predicted a more than 1 million barrel draw. Meanwhile, demand for the motor fuel in US rose 2.2 per cent in the week to July 16 after two weeks of declines, according to Descartes Labs.

Crude’s losses on Wednesday came amid widespread weakness across commodities, with gasoline, copper and iron ore also declining. The dollar climbed, reducing the appeal of raw materials priced in the currency.

Brent’s prompt time spread was 59 cents a barrel in backwardation. While that’s a bullish pattern, with near-dated prices above those further out, it is down from 88 cents at the start of the month.

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