CommoditiesOil Extends Decline with a 0.5% Drop as Covid Variant Raises Supply Concerns

Oil prices fell for a third day on Wednesday on mounting concerns that the increasing spread of the delta variant of the coronavirus in top consuming countries will cut fuel demand.

Brent crude oil futures slid 22 cents, or 0.3%, to $72.19 a barrel, as of 0129 GMT. U.S. West Texas Intermediate (WTI) crude fell 33 cents, or 0.5%, to $70.23 a barrel.

TradingView Chart Snapshot
Brent Crude Futures, one year technical performance chart

Both futures fell on Tuesday to their lowest since July 21 before regaining some ground by the close.

The United States and China, the world’s two biggest oil consumers, are grappling with rapidly spreading outbreaks of the highly contagious delta variant that analysts fear will limit fuel demand at a time when it traditionally rises in both countries.

“Seasonal weakness in economic activity amid rising cases of the delta variant continue to weigh on sentiment,” ANZ said in a note.

“Nearly half of China’s provinces have been being gripped by the latest outbreak. This comes as the summer travel season hits its peak. This is likely to see crude oil demand come under pressure.”

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.

Still, bubbling geopolitical tensions in the Gulf may offset the demand concerns.

On Tuesday, three maritime security sources claimed Iranian-backed forces seized an oil product tanker off the coast of the United Arab Emirates, though Iran denied the reports.

This is the second attack on a tanker since Friday in the region, which includes the Strait of Hormuz oil export chokepoint. The UK and the U.S. are also blaming Iran for the earlier incident, in which drones crashed into the vessel and killed two sailors.

U.S. stockpile data also provided some support for prices as crude oil, distillate and gasoline inventories declined.

Crude oil futures price contract 1 graph
Crude oil futures and estimated contract prices (dollars per barrel)

Crude stockpiles fell by 879,000 barrels for the week ended July 30, according to two market sources, citing American Petroleum Institute figures on Tuesday.

Gasoline inventories fell by 5.8 million barrels and distillate stocks fell by 717,000 barrels, the data showed, according to the sources, who spoke on condition of anonymity.

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