By Adedapo Adesanya
Oil dropped to $66 a barrel on Thursday, its lowest since May, pressured by concerns about weaker demand as COVID-19 cases rise coupled with a stronger US Dollar.
The circulation of the Delta variant in areas of low vaccination is driving transmission of COVID-19, the World Health Organization said, as coronavirus-related deaths have spiked in the United States over the past month.
China has had to restrict movement to curb the spread, further presenting an unfavourable outlook after it partially closed one of its biggest ports and major oil hub earlier this month, signalling that weaker oil imports are on the cards.
Both Brent and the American crude have declined for six days in a row, the longest losing streak since a six-day drop for both contracts that ended on February 28, 2020.
It was worse for both futures yesterday as the Brent crude went down by 36 cents or 0.6 per cent to $66.87 per barrel, while the West Texas Intermediate (WTI) crude fell by 42 cents or 0.63 per cent to $64.04 per barrel.
Market analysts pointed out that prices only reacted to the potential withdrawal of monetary support, the chaotic Taliban takeover of Afghanistan that threatens another migrant crisis and worries about the continuous spread of the virus keep the dollar in demand, which, in turn, acts as a brake on any attempted oil-price rally.
On the Dollar front, it hit a nine-month high, weighing on dollar-priced commodities. A strong dollar makes oil more expensive to other currency holders and tends to weigh on prices.
This is coming after it was suggested the US Federal Reserve is about to start winding down its bond-buying program that kept the world’s biggest economy going through the worst of the pandemic crisis.
Crude inventories fell by 3.2 million barrels in the week to August 13 to 435.5 million barrels, exceeding estimates for a 1.1 million-barrel drop, according to the Energy Information Administration (EIA).
In the bad news category, US fuel stocks rose by 696,000 barrels in the week to 228.2 million barrels, the EIA said, compared with analysts’ expectations for a 1.7 million-barrel drop.
The International Energy Agency (IEA) last week trimmed its oil demand outlook due to the spread of the Delta variant. The Organisation of the Petroleum Exporting Countries (OPEC), however, left its demand forecasts unchanged.
Traders may start to wonder when OPEC will lower its demand forecasts. Furthermore, some traders believe that OPEC and its allies, known as OPEC+, may leave current production levels unchanged in September or may even lower them to make up for any lost demand.
