Oil steadies but set to slump for the week on Delta anxiety

© Reuters. A 3D printed oil pump jack is seen in front of displayed stock graph in this illustration picture, April 14, 2020. REUTERS/Dado Ruvic/Illustration

By Sonali Paul

MELBOURNE (Reuters) - Oil prices came off three-month lows on Friday but were on track for a weekly decline of around 6% as new lockdowns in countries with low vaccination rates facing surging cases of the Delta variant dimmed the outlook for fuel demand.

Broader investor risk aversion also weighed on oil with the U.S. dollar jumping to a nine-month high on signs the U.S. Federal Reserve is considering reducing stimulus this year.

U.S. West Texas Intermediate (WTI) crude futures for September, due to expire on Friday, rose 35 cents or 0.5% to $64.04 a barrel at 0115 GMT after sliding 2.7% on Thursday. The more active October contract rose 33 cents or 0.5% to $63.83.

Brent crude futures rose 27 cents or 0.4% to $66.72 a barrel after dropping 2.6% on Thursday to its lowest close since May.

"With vaccination levels relatively low, the deteriorating situation across Asia has already seen mobility fall," ANZ commodity analysts said in a note.

"This will lead to a fall in crude oil demand in the region in the second half of the year. This is taking the shine off an otherwise positive backdrop elsewhere."

China has imposed new restrictions with its "zero tolerance" coronavirus policy, affecting shipping and global supply chains, and the United States and China have imposed tit-for-tat flight capacity restrictions.

Meanwhile Delta variant outbreaks in Australia and New Zealand have sparked strict lockdowns.

The approaching end of the U.S. peak gasoline demand season and end of summer holidays in Europe and the United States are also set to sap oil demand.

"Aviation remains the weakest component of global demand at the moment, and the risk of further restrictions on domestic and international travel due to the Delta variant will be a key variable for oil over the remainder of H2, particularly as the U.S. driving season ends," said Stephen Innes, managing partner of SPI Asset Management.