Oil holds above $70 despite weaker demand forecasts

© Reuters. A man holds a fuel pump at a gas station in Rio de Janeiro, Brazil July 8, 2021. REUTERS/Amanda Perobelli/Files

By Shadia Nasralla

LONDON (Reuters) -The Brent benchmark oil price held above $70 a barrel despite heading for a second successive daily decline on Friday after the International Energy Agency warned that oil demand growth is slowing sharply owing to the spread of coronavirus variants.

Brent crude was down 14 cents, or 0.2%, at $71.17 a barrel by 1158 GMT. U.S. crude lost 18 cents, or 0.2%, to $68.91. Over the week the benchmarks are up less than 1%.

Growth in demand for crude oil ground to a halt in July and is set to rise at a slower pace over the rest of 2021 because of surging infections from the Delta variant of the coronavirus, the International Energy Agency (IEA) said on Thursday.

"The sudden about-face by the IEA has shaken nerves and capped the oil rally, bringing home the reality of the impact of the Delta variant," said Jeffrey Halley, OANDA's senior market analyst for Asia Pacific.

Banks have also lowered their near-term demand forecasts.

"We now see the global demand recovery stalling this month with oil demand only reaching 98.3 million barrels per day (bpd) in August and averaging 97.9 million bpd in September, on par with the nearly 98 million bpd average in July," JPM Commodities Research said.

Similarly, Goldman Sachs (NYSE:GS) has reduced its estimate for the global oil deficit to 1 million bpd from 2.3 million bpd in the short term, citing an expected decline in demand in August and September.

Looking beyond the near-term risks from the Delta variant, the bank expects the demand recovery to continue alongside rising vaccination rates.

In sharp contrast, the Organization of the Petroleum Exporting Countries (OPEC) on Thursday stuck to its forecasts for a rebound in global oil demand this year and further growth in 2022, notwithstanding the rising concern over surges in COVID-19 infections.

However, OPEC also raised its expectations for supplies next year from other producers, including U.S. shale drillers, which could snarl efforts by the producer group and allies to achieve a balanced market.

"The IEA/OPEC duo are far from being unanimous when it comes to the oil demand front. However, one area in which they find common ground is the reducing demand for OPEC crude," PVM analysts said in a note.