Oil prices closed the week of the biggest loss in more than nine months with another drop on Friday as investors sold futures in anticipation of weakening worldwide fuel demand amid a surge in COVID-19 cases.
Numerous countries around the world are in a struggle with lowering infection rate of the coronavirus Delta variant by adding travel restrictions to stop the spread.
China has imposed stricter disinfection methods at ports, causing congestion. Countries including Australia have increased travel restrictions, and global jet fuel demand has softened after recovering during summer so far.
The crude oil market lost seven days in a row. It is hard to find a support at prices with this kind of uncertainty.
Brent crude fell 8% on the week, settling down $1.27, or 1.9%, to $65.18 a barrel, its lowest since April. West Texas Intermediate (WTI) crude for September settled down $1.37, or 2.2%, to $62.32 a barrel on Friday, to lose more than 9% for the week.
China, the world’s largest importer of crude oil, has imposed new restrictions with its “zero tolerance” coronavirus policy affecting shipping and global supply chains. Fist two biggest oil consumers The United States and China have imposed flight capacity restrictions.
Several US companies have delayed their return-to-office plans until early 2022.
The US dollar hit a nine-month high on signs that the US Federal Reserve is considering reducing stimulus this year. Oil prices move inversely with the US currency, making oil more expensive for foreign buyers when the dollar rises.
The Delta variant is driving demand under pressure, while supply is growing steadily. U.S. production rose to 11.4 million barrels per day in the last week, with adding rigs for the third week in a row, Baker Hughes said.
The Organization of the Petroleum Exporting Countries and its allies are slowly increasing the supply, which was shut down early in the pandemic.
Futures contracts show that the market expects ample supply in the coming months. The premium for the front-month Brent contract on the third-month contract has almost halved between the end of July and now, suggesting that short-term supply will not be as tight as the market expects.
