Oil settles lower in volatile trade on worries about Delta variant

© Reuters. FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, U.S., March 24, 2016. REUTERS/Nick Oxford/File Photo

By Jessica Resnick-Ault

NEW YORK (Reuters) -Oil settled lower on Tuesday, as concern about rising cases of the Delta coronavirus variant outweighed expectations for another weekly draw in U.S. inventories that had boosted prices early.

Brent crude oil futures settled down 48 cents, or 0.66% at $72.41 a barrel. U.S. West Texas Intermediate (WTI) crude settled down 70 cents, or 0.98% at $70.56 a barrel. Prices held lower in post-settlement trade after market sources said preliminary data suggested crude stocks drew in the United States. [API/S]

Concerns over the spread of Delta variant in the United States and China, the top oil consumers, weighed on prices, with both benchmarks falling more than 3% at one point.

In China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control.

"The news flow out of China has been bearish since the weekend," said John Kilduff, a partner at Again Capital Management in New York. "There continues to be angst about the COVID-19 situation, which weighs on the petroleum complex the most."

Earlier, Brent and U.S. crude had risen more than 60 cents. Brent has risen more than 40% this year, helping earnings of oil firms.

"We're trying to price in how big the slowdown is going to be with the Delta variant," said Phil Flynn, senior analyst at Price Futures Group in Chicago.

BP (NYSE:BP), ConocoPhillips (NYSE:COP) , Diamondback (NASDAQ:FANG) Energy Inc and Continental Resources (NYSE:CLR) Inc all reported strong second-quarter earnings this week.

Expectations of a return of Iranian crude to the markets also pressured prices. Iran and six powers have been in talks since April to revive a nuclear pact that could release its oil exports. But officials have said significant gaps remain.

Iran's new president, Ebrahim Raisi, said on Tuesday his government would take steps to lift "tyrannical" sanctions imposed by the United States on its energy and banking sectors.

The sixth round of indirect talks between Tehran and Washington adjourned on June 20, two days after Raisi was elected president. Parties involved in the negotiations have yet to announce when the talks will resume.

A Reuters poll showed U.S. crude and product inventories likely declined last week, with both distillates and gasoline stockpiles predicted to have fallen for a third straight week.

The American Petroleum Institute, a trade group, suggested U.S. crude stocks fell by 879,000 barrels in the week ended July 30, market sources said. The data showed that U.S. distillate inventories, including diesel, fell by 717,000 barrels for the week ended July 30, and U.S. gasoline stockpiles dropped by 5.8 million barrels.[API/S]