Oil headed for the biggest weekly loss this year as the spread of the Delta coronavirus variant cast doubt on the continued recovery in demand, particularly in the world’s biggest crude importer China.
West Texas Intermediate was little changed near $US69 a barrel in early Asian trading, and it’s dropped 6.6 per cent so far this week, the biggest decline since the period to October 30. A surprise jump in US stockpiles has also hurt prices.
China has imposed a patchwork of restrictions on mobility to fight the spread of the highly infectious COVID-19 variant, including the cancellation of flights and train services.
Beyond Asia, Delta’s flare-up has also complicated progress toward reopening, with some major US companies including Amazon delaying their plans for a full return-to-office program until 2022.
After soaring in the first half on resurgent demand and a drawdown in inventories, the latest chapter in the pandemic has made the going for crude a lot tougher.
Futures eked out a small gain in July, but are taking a heavier blow this month. At present, the Organisation of Petroleum Exporting Countries and its allies still plan to go on adding more barrels each month.
UBS is among bulls standing their ground, arguing that despite the challenge posed by Delta, the return to economic normalisation will continue globally, and the crude market remains in deficit. The bank expects Brent crude to trade between $US75 and $US80 a barrel this half, it said in a note on Thursday.
Key pricing patterns have narrowed this week, indicating a weakening market. Brent’s prompt time spread — the gap between the most immediate futures contract and the one a month later — was 50 US cents a barrel in backwardation on Friday, compared with US 92 cents a week ago.