Oil Prices Sink On Weak Demand Outlook

Oil prices sank for a third consecutive day as the spread of the delta coronavirus variant hurt prospects for global demand.

Brent crude was down 90 cents, or 1.3%, at $69.69 a barrel by 08:00 WAT. U.S. oil fell by 97 cents, or 1.4%, to $67.47 a barrel.

In Asia, fresh virus outbreaks have started weighing on China’s economy, with retail sales growth and industrial output slowing. Meanwhile, cases are either at or near records in nations including Thailand, Vietnam, and the Philippines.

After soaring in the first half, crude oil’s rally has started to fray since mid-July. The spread of delta, including in key consumer China, has undermined the outlook for consumption as restrictions on mobility are reintroduced. At the same time, OPEC+ has proceeded with plans to gradually increase production, rolling back the supply curbs it imposed in the early days of the pandemic.

China's crude oil processing last month also fell to the lowest on a daily basis since May 2020, as independent refiners cut production amid tighter quotas, elevated inventories, and falling profits. China is the world's biggest oil importer.

In Japan, the world's fourth-biggest importer of crude oil, many analysts expect modest economic growth in the current quarter as the state of renewed emergency restrictions to deal with record cases of infections weigh on household spending.

There are signs U.S. shale producers are ramping up activities. The total number of rigs searching for oil across the country rose by 10 last week to 397, marking the biggest weekly jump since April, according to Baker Hughes Inc. data on Friday. Most of the gains came outside the Permian Basin.

The International Energy Agency on Thursday said rising demand for crude oil reversed course in July and was expected to increase at a slower rate over the rest of 2021 because of surging COVID-19 infections from the highly transmissible Delta strain.

Also, money managers reduced their net-long U.S. crude futures and options holdings in the week to Aug. 10, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Speculators also cut their futures and options positions in New York and London by 21,777 contracts to 283,601 over the period, the CFTC said.

Crude’s drop has been reflected in the market’s deteriorating pricing patterns. Brent’s time spread was 40 cents a barrel in backwardation on Monday. While that remains a bullish structure, it’s down from above 90 cents in late July.