Crude Weakens; IEA Downgrades Oil Demand Forecast

© Reuters.

By Peter Nurse

AiVIF.com -- Crude oil prices weakened Thursday after the International Energy Agency cut its oil demand outlook for the year, citing the spread of the Covid-19 delta variant.

By 9:15 AM ET (1315 GMT), U.S. crude futures were down 0.4% at $69.03 a barrel, while Brent futures were down 0.2% at $71.13 a barrel. 

U.S. Gasoline RBOB Futures were down 0.6% at $2.2880 a gallon.

The IEA projected Thursday that demand growth would be half a million barrels per day lower in the second half of the year compared with its estimate last month, “as new Covid-19 restrictions imposed in several major oil consuming countries, particularly in Asia, look set to reduce mobility and oil use."

The Organization of the Petroleum Exporting Countries also released its monthly report earlier Thursday, but maintained its forecast on global oil demand growth for 2021 and 2022 while raising its estimates for the growth of the global economy.

Evidence of the impact of the Covid outbreak in China came with the shutdown of a container terminal in Ningbo, where a case was detected this week. The highly transmissible delta variant has been detected in more than a dozen cities since late July, and the associated tighter restrictions are starting to hit the economy of the second largest consumer of crude in the world.

Sentiment was hit Wednesday by U.S. President Joe Biden’s call for the major crude producers to boost output to tackle rising gasoline prices.

The OPEC and its allies, known as OPEC+, is in the process of restoring the record output cut of 10 million barrels per day instigated in the early days of the pandemic.

The group agreed in July to boost output by 400,000 barrels a day a month starting in August until the output cut is fully restored.

“We imagine that there will be quite a lot of reluctance from the Saudis and the broader group to increase output further, particularly given continued uncertainty over the spread of the delta variant,” said analysts at ING, in a note.