Brent oil steadies near 8-week low after market selloff on Covid-19 resurgence

Brent oil was steady after tumbling to an eight-week low amid a broader market rout stoked by a Covid-19 resurgence, which has raised concerns about the short-term outlook for energy demand.

Futures in London traded near $69 a barrel after plunging 6.8 per cent on Monday, the most since March. The fast-spreading delta variant has led to a surge in virus cases and renewed restrictions as it sweeps across the globe from Asia to Europe. A stronger dollar has also weighed on crude, making raw materials priced in the US currency less attractive to investors.

Oil has run into stiff headwinds in July after rising in seven of the past eight months as the global economy rebounded from the pandemic. The salvaged OPEC+ deal has removed a layer of uncertainty for the market, but the latest Covid-19 resurgence is a reminder that the recovery will be bumpy.

The US warned citizens to not travel to the UK and Indonesia amid a rise in infections in the two nations. Southeast Asia’s largest economy has surpassed India in new daily cases, cementing its position as Asia’s new virus epicentre, while several of its neighbours are also seeing a surge in cases.

“There is still potentially more downside pain ahead in the short-term, but in the bigger picture, the delta variant will only slow the global recovery and not bring it to a halt,” said Jeffrey Halley, an analyst at Oanda Asia Pacific.

Prices

Brent for September settlement gained 0.1 per cent to $68.69 a barrel on the ICE Futures Europe exchange at 12.03pm in Singapore after closing at the lowest level since May 24 on Monday.

West Texas Intermediate for August, which expires Tuesday, rose 0.2 per cent to $66.57 on the New York Mercantile Exchange after declining 7.5 per cent on Monday, the most since September.

The more-active September contract climbed 0.2 per cent to $66.48 after falling 7.3 per cent in the previous session.

The prompt timespread for Brent eased to 54 cents a barrel in backwardation — a bullish structure where near-dated prices are more expensive than later-dated ones. That compares with 78 cents a week earlier.

While oil has run into some turbulence, there are expectations that the market will tighten further and prices will once again rally. OPEC+ has agreed to keep gradually reviving output shuttered during the pandemic, but market watchers warn the increases aren’t enough to fill the looming supply shortfall.