Delta tightening grip on oil market

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(S&P Global Platts) Crude oil futures were lower during mid-morning Asian trade Aug. 16 as investor concerns over the fast-spreading delta variant resurfaced amid restrictive movement curbs in oil consuming giant China and growing number of cases in the US.

At 10:51 am Singapore time (0251 GMT), the ICE October Brent futures contract was down 80 cents/b (1.13%) from the previous close at $69.79/b, while the NYMEX September light sweet crude contract similarly fell 77 cents/b (1.13%) at $67.67/b.

“The delta [variant] worries are tightening their grip on oil market sentiment,” Vandana Hari, CEO of Vanda Insights, said. “The summer travel and tourism boom in the West is petering out, while the virus continues to fester in pockets across the world.”

Oil demand in China has taken a hit in recent weeks after growing COVID-19 cases in the country prompted the government to impose strict movements curbs to bring the virus under control.

Most notably, the country’s zero-tolerance approach to COVID-19 led to the closure mid-last week of its Meishan terminal at the world’s third-busiest port, namely the Ningbo-Zhoushan port, which is expected to disrupt supply chains globally.

“The centre of demand remains China, where a COVID-zero approach by Chinese authorities has seen strict guidelines on movement to curb more infections,” ANZ analysts said in a note.

“At least 144 areas, including 20 cities, have been [categorized] as having a medium to high virus risk, a measure that could see all public transport shut down,” they added.

Nonetheless, recent case numbers in China suggest the movement curbs are working. The National Health Commission recorded 24 locally transmitted cases in the country as of Aug. 14, down by 6 on the day and also significantly lower than the high of 108 cases for the month on Aug. 10.

Analysts said the Aug. 16 dip in oil markers may be short-lived as investors take time to reassess the supply-demand outlook as the week progresses.

“The trade patterns suggest fear and a herd mentality more than a cool-headed recalibration of demand. We have seen a few such “panic Mondays” in recent weeks,” Hari said.

COVID-19 case numbers in the US have continued to grow. The US Centers for Disease Control and Prevention on Aug. 12 reported its highest number of COVID-19 cases since January 2021 at 146,949. The seven-day moving average stood at 119,523 as of Aug. 13, more than six times the average at the start of July.

The demand outlook remains highly uncertain. Last week, the International Energy Agency pointed to a 120,000 b/d drop in July oil demand because of the coronavirus resurgence in China and other parts of Asia, and had cut its second-half 2021 demand estimate by 600,000 b/d to 98.15 million b/d.

OPEC, meanwhile, said on Aug. 12 it was keeping its global demand forecasts for 2021 and 2022 unchanged, and that oil demand should remain higher than supply over the coming months.

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