Oil climbs from three-week low as traders assess demand outlook

Oil rose from a three-week low as investors assessed the demand outlook amid the rapid global spread of the delta virus variant.

Futures in New York traded near $67 a barrel after sliding almost 4 per cent over the past two sessions. Delta has led to rising infections and renewed restrictions in some regions, including in China where air travel has slumped and oil refining is set to be scaled back. Despite the flare-up, expectations are that global demand will accelerate and tighten the market through year-end.

Delta has raised concerns about the short-term demand outlook and interrupted a rally in oil that saw prices advance more than 50 per cent over the first half of the year. The resurgence is crimping fuel consumption just as the OPEC+ alliance returns more supply to the market that it halted during the pandemic.

The International Energy Agency and the Organization of Petroleum Exporting Countries are scheduled to release monthly reports on Thursday, which should give an indication of how seriously they see the threat to demand from delta.

“China’s Covid Zero strategy means restrictions could continue to widen and tighten, denting oil consumption,” said Vandana Hari, the founder of consultant Vanda Insights. “Delta outbreaks are certainly cause for a revaluation of the earlier anticipated trajectory of the global demand recovery.”

Prices

• West Texas Intermediate for September delivery rose 0.7 per cent to $66.94 a barrel on the New York Mercantile Exchange at 12.01pm Singapore time after dropping 2.6 per cent on Monday.
• Brent for October settlement gained 0.5 per cent to $69.35 on the ICE Futures Europe exchange after falling 2.4 per cent on Monday.

The oil market structure has also weakened as Covid-19 cases climb. The prompt timespread for Brent was 46 cents a barrel in backwardation – where near-dated contracts are more expensive than later-dated ones. That compares with 92 cents at the end of July.

The number of seats being offered by China’s airlines dropped the most since early in the pandemic as the nation implemented fresh restrictions to contain the latest wave, based on data from aviation specialist OAG. Meanwhile in the US, virus cases surged to the highest weekly level since early February.

China Petroleum & Chemical Corp., the nation’s biggest refiner that’s commonly known as Sinopec, is cutting run rates at some plants by 5 per cent to 10 per cent compared with previously planned levels this month, said Jean Zou, an analyst at commodities researcher ICIS-China. The analytics firm tracks operations, maintenance plans and processing margins across the country.