Oil Slides as Virus Adds to Inventory Build
(Bloomberg) -- Oil prices fell for a fourth day, with Brent sliding through $70 a barrel for the first time in two weeks, on the risks to demand posed by the delta virus variant, especially in China.
Traders are concerned about the impact of a fresh batch of curbs to combat the highly infectious strain of the virus. Adding to the bearishness, U.S. oil inventories also posted a surprise increase last week, the Energy Information Administration reported Wednesday. Key spreads for the world’s main benchmark crudes have slumped sharply in the past several days, pointing to a less confident reading of the market among traders and investors.
Oil has sunk as optimism over a continued recovery from the pandemic has been challenged by delta’s spread. The puncturing of that more positive narrative comes as the Organization of Petroleum Exporting Countries and its allies push on with easing the supply curbs they imposed last year.
“Crude is showing tentative signs of bottoming out, but the losses forced by the delta-led demand concerns this week may not be easily reversed,” said Vandana Hari, founder of Vanda Insights in Singapore. “Thanks to the unexpected and sizable build in crude stocks, the EIA data failed to provide the support crude badly needed.”
The situation in China is worsening. There were 62 confirmed Covid-19 cases on Wednesday, as well as additional asymptomatic infections, according to the National Health Commission. Authorities imposed new travel and movement restrictions, including in the capital, Beijing. Hong Kong re-imposed quarantine on travelers from the mainland, though an exception remained for the southern Guangdong province, a neighbor to the financial hub.
There was additional negative news from Australia. In Victoria state, the city of Melbourne will go back into lockdown, its sixth since the start of the pandemic.
The so-called prompt timespread, the gap between the most immediate futures contracts and those a month later, are indicating a weakening market. First-month WTI currently stands at a premium of about 40 cents a barrel to second-month, down from 75 cents at the start of August, according to Nymex data. The Brent equivalent has seen a similar retreat.
Crude’s drop on Wednesday came amid a broad decline in commodities after a senior Federal Reserve official suggested the U.S. central bank is on course to pull back the massive support it is providing to the pandemic-damaged economy. That lifted the dollar, hurting raw materials priced in the currency.
--With assistance from Alaric Nightingale.
© 2021 Bloomberg L.P.
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