Oil Eases From 2.5 Year High on Virus Threat
(Bloomberg) -- Oil eased from its highest closing level since October 2018 as signs of a strong U.S. crude market were offset by fears over the delta variant’s threat to demand.
Futures in New York traded near $75 a barrel, after climbing 1.6% on Tuesday. American crude inventories declined substantially again last week, according to an industry report published ahead of government data due later on Wednesday. The nation’s oil demand has soared to new heights, with gasoline and diesel returning to pre-pandemic levels.
Yet the global outlook faces a growing threat from the spread of the coronavirus variant. Indonesia posted a record number of positive cases, while Sydney extended a lockdown.
“Trouble is brewing for the oil market,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. “Fears are mounting that rising Covid-19 Delta cases could delay a full economic recovery. This, in turn, poses a significant threat to oil demand growth in the near-to-medium-term.”
Oil has rallied more than 50% this year as the vaccine rollout lifts demand in major economies such as the U.S. and China, and fosters a recovery in Europe. Futures prices are showing a premium on nearer-term contracts, known as backwardation, which usually indicates tightness.
The International Energy Agency is warning that the market will tighten significantly if the OPEC+ alliance doesn’t resolve a standoff that’s preventing the group from reviving production.
The American Petroleum Institute said crude inventories slid by more than 4 million barrels last week, according to people familiar with the data. The Energy Information Administration is expected to report a similar reduction later on Wednesday, according to a Bloomberg survey.
That would be an eighth straight weekly draw, the longest run of declines since January 2018. A surge in petroleum use for products such as plastic, asphalt, lubricants and other industrial needs is helping to propel the recovery.
© 2021 Bloomberg L.P.
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