This week, NYMEX crude oil plunged 8.10% to 67.83 US dollars per barrel, the largest weekly negative line since October 30, 2020; ICE Brent crude oil closed down 6.29%, the largest weekly negative line since March 19. Both cities hit their lows since July 21, reaching US$67.61/barrel and US$69.75/barrel respectively.
Investors worry that the slowdown in manufacturing activities in major oil-consuming countries and the travel restrictions imposed by many countries to contain the Delta variant virus are expected to undermine the recovery of global energy demand. Crude oil futures are also under pressure due to the strengthening of the US dollar. However, the deteriorating geopolitical situation in the Middle East limited the oil market’s selling pressure.
The mutant strain Delta spreads
As the summer tourist season draws to a close, the spread of cases of the Delta variant strain may affect oil demand. U.S. President Biden said that the number of new cases in the United States has risen to the highest in six months, but will rise before it declines. The new Delta variant is causing unnecessary losses to the United States.
Japan is preparing to extend emergency restrictions to more counties; Australia’s largest city, Sydney, despite a weeks-long lockdown, has reported a record number of cases; as the number of infections in a single day continues to hover near record highs, South Korea will Social distancing restrictions have been extended for two weeks.
There are currently more than 200 million confirmed cases of the global coronavirus. FGE analysts said in a report on Thursday that the surge in confirmed cases of the mutant strain Delta will have a negative impact on transportation fuel demand in the short term.
ANZ Bank said in a report: “With the increase in Delta variant cases, seasonal weakness in economic activity continues to weigh on market sentiment, at this time when the summer tourist season comes. This may cause crude oil. Demand is under pressure.”
Howie Lee, an economist at OCBC Bank in Singapore, said: “The oil price trends we are seeing are indeed affected by the macro situation. The Delta variant is now really hitting the point. Risk aversion is emerging in many markets, not just the oil market. “
Although global new crown cases continue to climb, higher vaccination rates will limit the need for strict lockdowns. Carsten Fritsch of Commerzbank said: “Most people still predict that demand will grow strongly in the second half of the year. In other words, it is easy to believe that the oil market has learned to coexist with the virus.”
Global manufacturing slowdown
China’s official manufacturing PMI index fell to 50.4 in July from 50.9 in June; manufacturing activity in the United States also slowed down. The ISM index fell from 60.6 in June to 59.5, the lowest since January. However, with the fading of short-term interference factors and the support of policies, the operation of the manufacturing industry is expected to continue to expand in the future.
India’s single-day gasoline consumption last month exceeded the level before the outbreak of the new crown epidemic because of the relaxation of travel restrictions in various states. However, gasoline sales in India are still low, indicating weak industrial activity in the country in July. Prime Minister Modi also warned the public not to overcrowd.
ANZ Bank analysts emphasized in a report that the epidemic has rekindled economic risks to major oil-consuming countries, which may lead to the implementation of further liquidity restrictions. The slowdown in manufacturing activity is another key issue.
Edward Moya, senior analyst at OANDA, said: “If the (Chinese industry) pullback deepens, people’s concerns about a sharp decline in the global economic outlook will increase, and the outlook for crude oil demand will be unstable. This situation may not be the case until the global vaccination situation improves. Will improve.”
U.S. inventories are mixed
The latest data released by the U.S. Energy Information Administration (EIA) shows that as of the week of July 30, U.S. crude oil inventories unexpectedly increased by 3.627 million barrels, and the market had previously expected a decrease of 2.942 million barrels. However, US gasoline inventories fell sharply by 5.291 million barrels last week, far exceeding the expected 1.356 million barrels.
EIA also said that WTI crude oil futures inventories at the Cushing Crude Oil Futures Delivery Center in Oklahoma fell for the eighth consecutive week, reducing 543,000 barrels to 34.9 million barrels, the lowest level since January 2020. This shows that U.S. demand for refined oil has withstood the test of the increase in new crown cases.
In the past four weeks, the total supply of refined oil from refiners, a barometer of demand, has increased to 20.5 million barrels per day, which is the same level as before the epidemic. Analysts said they will pay close attention to whether refining activities or fuel demand will be affected by rising infection rates in the United States and the world.
The Commonwealth Bank of Australia analysts said in a report on Thursday: “U.S. gasoline inventories have fallen to the lowest level since November 2020, indicating that fuel demand is still quite elastic.” The average price of Lent crude oil in the fourth quarter will rise to $85/barrel.
CMC Markets analyst Kelvin Wong said: “In the short term, oil prices may fall into a range trading environment.” US crude oil is expected to be traded between US$66.30 and US$75.70 per barrel. He also said that the improvement in U.S. crude oil supply also limits the room for oil prices to rise.
Tony Headrick, energy market analyst at CHS Hedging, said: “Although people are worried about the Delta variant, we have not seen it have a significant impact on US refined oil demand. I think that overall, this is favorable.”
Geo-conflict prevents Iranian oil from returning to the international market
The market is concerned about increased tensions between Israel and Iran, which has limited the decline in crude oil prices. Israeli warplanes attacked a rocket launch site in Lebanon identified by its military earlier Thursday in response to two rockets fired from Lebanese territory to Israel.
Last week, a cruise ship in the Gulf was attacked, killing two crew members. The United States, Britain and Israel blamed Iran for the incident. The US State Department said on Wednesday that it believed Iran had hijacked a Panamanian-flag tanker in the Gulf of Oman.
But the Iranian side denied any connection with this. Iran’s Ministry of Foreign Affairs stated that reports of maritime incidents were “suspecting” and warned against attempting to create a “false atmosphere” against Tehran.
Edward Moya, senior analyst at OANDA, said: “Due to last week’s drone strikes that caused tensions between Iran and the world’s major powers to be fermenting, negotiations on the nuclear agreement seem to be lengthy and it is unlikely that sanctions on Iran will be relaxed immediately.”