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Oil Trades Around $66K as India’s Declining Demand Curbs Recovery Outlook.

Oil prices fell on Monday as a fatal second wave of a coronavirus epidemic hit India cutting short the demand outlook, offsetting optimism about a strong rebound in demand in developed countries and China in the second half of the year.

Brent crude futures for July fell 15 cents, or 0.2%, to $66.61 a barrel by 0244 GMT.

U.S. West Texas Intermediate for June was at $63.48 a barrel, down 10 cents, or 0.2%.

oil prices
Brent Crude Performance chart
Effect of India Demand Drop on Oil

Brent crude fell 0.4% after most active prices rose almost 6% last month. April sales of gasoline in India hit the lowest level since August, while those for diesel were the least since October, factoring in the length of the month.

“Overall fuel demand is down by about 7% from pre-COVID level of April 2019,” A.K. Singh, Head of Marketing, Refiner Bharat Petroleum Corp.

Consequently, the Confederation of Indian Industry president urged the government to curb economic activity to counter the growing health crisis.

Analysts expect India’s demand for transportation fuels to witness a sharper slump in May due to more restrictions.

“Given that it still appears as though COVID-19 in India has not peaked, we expect to see further downside to fuel demand over May,” ING analysts 

Oil has rallied in 2021 on prospects for a rebound in demand as Covid-19 vaccines are rolled out, paving the way for greater economic activity,  prompting analysts to increase their forecasts for Brent prices for a fifth straight month.

The survey of 49 participants forecasts that Brent would average $64.17 a barrel in 2021, up from last month’s consensus of $63.12 and the $62.30 average for the benchmark so far this year.

On the supply side, the Organization of the Petroleum Exporting Countries pumped 25.17 million BPD in April, up 100,000 barrels from March, as Iran and other producers increased output. OPEC’s production has risen every month since June 2020, except February.

Investors are focused on efforts to broker a U.S.-Iranian deal to revive a nuclear accord abandoned by the White House in 2018, potentially paving the way for an increase in crude exports from the Persian Gulf nation. U.S. officials said a deal isn’t close, denying an Iranian report on an impending prisoner swap.

Meanwhile, U.S. oil output may continue to struggle as domestic drilling fell for a second straight week. U.S. explorers battered by last year’s crash show unprecedented austerity, and the rig count is still at half pre-pandemic levels. Also, the Arctic blast that swept through the U.S. South in February caused a much bigger loss in supply than previously estimated.