Oil’s 3-Day Rally Snaps as Covid Headlines Spook Market Again

© Reuters.

By Barani Krishnan

AiVIF.com - Oil’s three-day rally snapped on Thursday after U.S. crude prices neared the key $70-per-barrel resistance while Covid hospitalizations in the country approached the year’s highs. 

A stronger dollar amid expectations of a stimulus taper likely to be announced by the Federal Reserve at its Jackson Hole symposium on Friday also weighed on oil and most commodities.

Both New York-traded West Texas Intermediate crude and London’s Brent had tacked about 10% between Monday and Wednesday, recouping all of last week’s 9% slump.

But with WTI edging toward $70, the market came under selling pressure heightened by news that more than 100,000 Americans were in hospital for Covid complications — a level not seen since Jan. 30 — from a spike in infections caused by the Delta variant.

WTI, the benchmark for U.S. oil, settled down 94 cents, or 1.4%, at $67.42 per barrel. Despite the decline, it was still up around 8% on the week.

Brent, the global benchmark for oil, settled down $1.18, or 1.6%, at $71.07. Brent also remained about 8% up on the week.

“Given the risks around the delta variant of the coronavirus, but also the accelerating vaccine programs, it’s possible that the second half of the year also sees a bit of a stop-and-go development before things (hopefully) normalize in 2022,” Eurasia Group said in a note.

The dollar’s rally ahead of the Fed’s Jackson Hole event also caused some unwinding of the long money in oil, said market watchers.

“(It’s a) make-or-break moment for the U.S. dollar, (with) Fed Chair Powell’s expected pivot towards tapering,” said Ed Moya, analyst at New York’s OANDA. “The dollar was boosted from some reflation bets, safe-haven flows, and as some investors scaled back on some risky assets.”