Oil Extends Losses After Weekly Drop On Sronger Dollar, Virus Concerns

Oil extended losses after the worst week since October on the back of a rising U.S. dollar and concerns that new pandemic curbs may set back the global recovery in fuel demand.

Brent crude futures dropped by $1.27, or 1.8%, to $69.43 a barrel on Monday morning, after having slumped 6% last week, their biggest weekly loss in four months. U.S. West Texas Intermediate (WTI) crude futures fell $1.29, or 1.9%, to $66.99 a barrel after slumping nearly 7% last week in their steepest weekly decline in nine months.

The resurgence has led Goldman Sachs Group Inc. to downgrade its economic growth forecast for China, which recently completed a mass testing program in Wuhan — the original epicentre of the pandemic — following new confirmed cases. Infections have also climbed in the U.S. and Thailand.

China's crude oil imports dipped slightly on a daily basis in July to 9.71 million barrels per day (bpd), the fourth month in a row of imports below 10 million bpd and sharply down on a record 12.94 million bpd in June 2020 when refiners were stocking up on cheap crude, data released on Saturday showed.

Dollar strength is also weakening the appeal of raw materials such as oil and gold. After jumping Friday, the currency held gains following robust U.S. jobs report that fueled bets the Federal Reserve may start easing its stimulus.

Oil has run into stiff headwinds this month as the fast-spreading delta variant sweeps across the globe, leading to renewed restrictions on movement in some regions and coinciding with a production boost from OPEC+. The International Energy Agency will provide an updated snapshot of the market on Thursday.

OPEC+ will make monthly supply hikes of 400,000 barrels a day from August and continue until all of its output halted during the pandemic is revived. While the latest Covid-19 flare-up is clouding the outlook, expectations are that the market will be able to absorb the additional barrels as demand accelerates.

Delta is also impacting the oil market structure. The prompt time spread for Brent has narrowed to 35 cents a barrel in backwardation — a bullish signal where near-dated contracts are more expensive than later-dated ones. That compares with 69 cents a week earlier.