Oil prices are bearish today at the London trading session following news of the spread of the coronavirus Delta variant in top consuming countries, Mideast geopolitical tensions and a fall in U.S. inventories. This has caused the U.S oil, known popularly as the West Texas Intermediate (WTI) to drop 1.11%, currently trading below the $70 trading zone to currently stand at $69.80 a barrel while the Brent crude oil futures is down 0.83%, currently trading at $71.81 a barrel as of the time of writing this report.
The United States and China, the world’s two biggest oil consumers, are dealing with rapidly spreading outbreaks of the highly contagious Delta variant that many analysts fear will limit fuel demand especially now that the Organization of Petroleum Exporting Countries and its allies (OPEC+) have increased its output to supposedly meet increased demand. In China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control.
Even with the spread of the virus in the U.S, the country’s oil inventory declined which many analysts believe capped some losses as both contracts traded slightly higher earlier in the session. U.S. crude inventories fell by 879,000 barrels for the week ended July 30, according to two market sources, citing figures from industry group American Petroleum Institute (API).
Gasoline inventories fell by 5.8 million barrels and distillate stocks fell by 717,000 barrels, the data showed, according to the sources, who spoke on condition of anonymity. This indicates that the summer drive is still happening in the U.S despite increased worry over the delta variant.
What they are saying
Analysts at bank ING stated, “Worries continue to grow over the spread of the Delta variant in China, which has weighed heavily on oil prices in recent days.”
Oil brokerage PVM stated, “(Oil) bulls have drawn support from U.S. inventory dynamics, with commercial stocks falling to their lowest since January 2020 and indications that the tightening is set to continue.”
Investors now await the official Energy Information Administration numbers due later today, at the start of the New York trading session. Many analysts also believe that tensions in the Mideast Gulf also lent prices some support. Yesterday, three maritime security sources claimed Iranian-backed forces seized an oil product tanker off the coast of the United Arab Emirates, though Iran denied the reports. This is the second attack on a tanker since Friday in the region, which includes the Strait of Hormuz.