Oil futures were on track to stretch their losses into a sixth straight session on Thursday, with prices dropping as the spread of the delta variant of the coronavirus that causes COVID-19 underlines worries about the demand outlook, and as the U.S. dollar rallies.
The sell-off in oil is “well underway, with the spread of COVID in China, and elsewhere, and restrictions that have come with it largely behind the reversal in fortune,” said Craig Erlam, senior market analyst at Oanda, in a marke tupdate.
U.S. benchmark crude prices have fallen below $65 so “worse days may lie ahead,” he said. “Further support may now lie around $60 in WTI and $64 in Brent, but it could get worse if the Covid situation continues to deteriorate.”
Of course, that may depend on the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, and “whether recent developments encourage the producers to pare back their taper ambitions in anticipation of lower demand.”
That seems “unlikely in the near-term given that oil prices remain at decent levels, despite the drop,” said Erlam.
West Texas Intermediate crude for September delivery
the global benchmark, was down $2.36, or 3.4%, at $65.87 a barrel on ICE Futures Europe.
Both WTI and Brent crude were trading at the lowest for most actively traded contracts since May.
“Besides the concerns about demand, which have already been discussed at length, the pronounced slide in base metals and the strong U.S. dollar are now weighing on prices,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.
The ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, was up 0.3% at 93.40 after taking out its March high to trade at its loftiest level since November. A stronger dollar can be a negative for commodities priced in the currency, making them more expensive to users of other currencies.
The dollar’s rise, however, also appeared to be part of a flight-to-safety prompted by the selloff in assets perceived as risky, including stocks and commodities, after the minutes of the Federal Reserve’s July policy meeting, released Wednesday, showed “most” policy makers favored scaling back asset purchases this year.
In particular, some analysts have argued that the move toward tapering bond purchases comes as worries mount over the potential hit to economic growth from the spread of the delta variant.
Data from the U.S. Energy Information Administration on Wednesday showing a fall in gasoline demand may also be hanging over the market. “Though the summer driving season still has three weeks to go, it is already clear that it will not meet the high expectations,” Fritsch said.
The steep rise in new coronavirus cases in the U.S. also makes any positive surprise unlikely in the next few weeks, “because many people will probably opt not to travel for fear of catching the virus,” he said.
The number of U.S. cases of COVID-19 reported Wednesday rose to 140,893, up 47% from two weeks ago, while the daily average for deaths rose to 809, up 97% from two weeks ago and the highest seen since early April, according to a New York Times tracker.
September natural gas
traded at $3.78 per million British thermal units, down 2%.
The EIA said Thursday that domestic supplies of natural gas rose by 46 billion cubic feet for the week ended Aug. 13. On average, analysts forecast an increase of 35 billion cubic feet, according to a poll conducted by S&P Global Platts.
The EIA said the data, however, included an adjustment to the week’s total to account for a reclassification of some gas stocks from base gas to working gas. Working gas is the volume of gas available in the market. The implied flow for the week is an increase of 42 bcf to working gas stocks, the EIA said.