Oil dips as Covid spikes threaten prospects for fuel demand

Oil prices fell for a second day today on concerns about slower growth in fuel demand as outbreaks of the highly contagious Delta strain of coronavirus led to new mobility restrictions around the world.

Brent crude futures fell 67 cents, or 0.9%, to $74.01 a barrel today, after falling 2% yesterday.

US West Texas Intermediate (WTI) crude futures fell 83 cents, or 1.1%, to $72.08 a barrel, extending a loss of 1.5% yesterday.

Despite the virus flare-up, the market still broadly expects vaccine rollouts to improve demand prospects, analysts said.

“The story of recent months has not changed: the war against the virus is gradually being won, the world economy and oil demand are recovering,” said PVM Oil analyst Tamas Varga.

“Oil supply is being managed effectively, which is why dips are likely to be seen as attractive buying opportunities by fiery bulls.”

The flare-up in cases of the Delta variant comes as the Organization of the Petroleum Exporting Countries, Russia and allies, known together as OPEC+, meet on July 1 to discuss how to ease their supply restrictions.

OPEC’s demand forecasts show global oil supply lagging demand by 2.2 million barrels per day (bpd) in the fourth quarter, giving producers some leeway to agree to add production.

Analysts expect OPEC+ to ramp up supply in August as the market tightened on strong fuel demand growth in the US and China, the world’s two largest oil consumers.

Spain and Portugal, favorite summer holiday destinations for Europeans, this week imposed new restrictions on unvaccinated Britons, while 80% of Australians faced stricter restrictions as a result of virus flare-ups across the country.

Talks about a travel corridor between the US and Britain also slowed, in part due to concerns about an increase in cases of the Delta variant in Britain, the Financial Times reported, citing officials.

Investors will look to the latest US inventory data for clues about the demand outlook.

Crude stocks likely extended their decline for the sixth straight week, while gasoline inventories also fell, a preliminary Reuters poll showed.