Oil drops again as China Delta outbreak threatens demand

Bloomberg

Oil declined for a third day as the coronavirus spread in China and a report showed a surprise build in US crude inventories.
West Texas Intermediate futures slumped as much as 3.4%. The delta strain of Covid-19 has been detected in almost half of China’s 32 provinces in two weeks, and at least 46 cities have advised residents against non-essential travel. Meanwhile, American crude supplies increased by 3.63 million barrels, the biggest gain since March, according to a weekly report from the Energy Information Administration (EIA). The industry-funded American Petroleum Institute and analysts polled by Bloomberg had predicted draws.
Gasoline inventories fell 5.29 million barrels to the lowest volume since November, while a gauge of fuel demand, total products supplied, was steady, the EIA also said. “We’re seeing a continued increase in fuel consumption, which is a good sign of economic recovery. While there is clearly concern about the delta virus, overall we’re seeing continued recovery on the demand side,” said Quinn Kiley, portfolio manager at Tortoise.
After ekeing out a small advance in July, August is proving to be tough for crude. Tightened controls in some Asian nations to curb the spread of the virus risk eroding oil demand at a time when the Organization of Petroleum Exporting Countries and its allies are gradually increasing supply. “Crude oil continues to trade soft with the focus on the risk to demand from a fast-spreading outbreak of the delta coronavirus variant in key importer China,” said Ole Hansen, head of commodities research at Saxo Bank A/S.
The gloomy demand outlook continues to weaken the nearest timespread in the US oil benchmark on Wednesday.

While the spread is still in a bullish backwardation structure — with near-dated prices trading at a premium to those further out — it has narrowed to the smallest in about two weeks.
WTI for September delivery slipped $1.68 to $68.88 a barrel in New York.
Brent for October settlement dropped $1.21 to $71.20 a barrel.
China’s latest outbreak has spread to Beijing despite the capital’s stringent measures, with authorities taking steps to ban rail passengers from 23 regions. The financial hub of Shanghai also reported a virus case this week. As risks escalate, analysts are reviewing their economic growth projections.