Oil Down as Delta, OPEC Stand-Off Haunt Market

© Reuters.

By Barani Krishnan

AiVIF.com - Oil prices fell Monday as worries about the spread of the Delta variant of the coronavirus and the continued Saudi-UAE standoff in OPEC kept buyers away as the market began a new week.

New York-traded West Texas Intermediate crude, the benchmark for U.S. oil, settled down 46 cents, or 0.6%, at $74.10 a barrel. WTI also lost 0.6% last week.

London-traded Brent, the global benchmark for oil, slid 39 cents, or 0.5%, to settle at $75.16. Brent  lost 0.8% last week. 

The United States recorded the highest number of Covid cases over the weekend since May as the highly-transmissible Delta variant of the virus became more prevalent.

The spread of coronavirus variants and unequal access to vaccines threaten the global economic recovery, finance chiefs of the G-20 large economies warned on Saturday. While Southeast Asia and Australia have largely been the focus of new variants, Western capitals haven’t been spared either.

Despite growing concerns over Delta, the rally in oil has been largely insulated by bullish U.S. inventory data, which has shown seven straight weeks of crude drawdowns totaling more than 40 million barrels.

Wednesday’s weekly report from the Energy Information Administration could show another sizable  crude draw and complementing gasoline numbers that may keep WTI and Brent chugging at around $75.

Even so, some were already calling for a peak in motor fuels demand.

“After a brisk May and great June, I'm starting to feel like we're going to see gasoline demand relax a bit more, I think we've seen our peak (July 4), and it's unlikely we'll exceed it,” tweeted Patrick de Haan, an analyst at GasBuddy.

Fears of dysfunction within OPEC — after its failure last week to agree on new output levels for August, resulting in a fight between one-time allies Saudi Arabia and UAE — are also chipping away at the market’s bullish sentiment.

“It appears as if the UAE and Saudi Arabia are still struggling to come to an agreement,” analysts at ING said in a note. “Therefore prices are likely to remain volatile until we have some clarity around this issue.”

Latest weekly data from the Commodity Futures Trading Commission on traders’ positioning showed speculators reduced their net long positions in Brent by 4,796 lots, while WTI saw significantly more liquidations at over 33,000 lots.

“The bulk of this reduction was driven by longs liquidating, rather than fresh shorts,” ING said. “It would appear, given the uncertainty over OPEC+, that speculators have decided to take some risk off the table.”