Oil edges higher with robust demand outlook clouded by Delta

(BLOOMBERG) – Oil edged higher after eking out a modest weekly gain as investors assessed the outlook for demand amid a resurgence in Covid-19.

Futures in New York traded above US$72 a barrel after adding 0.4 per cent last week, the first weekly advance in three. There are signs that demand for fuels such as gasoline has increased as vaccination programs are rolled out, although the fast-spreading delta variant has raised concerns about the short-term outlook. Tight restrictions have been renewed including curfews in some places.

The latest virus flare-up has coincided with a salvaged OPEC+ agreement to add more barrels from August, whipping up stiff headwinds for oil and interrupting a price rally. Expectations are for a continued tightening of the market throughout the rest of 2021, however, leading to even higher prices.

While the recovery in key energy consumers such as the US and China has helped to drain bloated crude and fuel stockpiles built up during the pandemic, the aviation sector is lagging. Air travel has jumped in North America, but that’s done little to diminish the massive glut in jet fuel inventories.

The prompt timespread for Brent was 65 US cents a barrel in backwardation – a bullish market structure where near-dated prices are more expensive than later-dated ones. That compares with 88 US cents at the beginning of July.

Countries including Thailand and Vietnam are imposing curfews in cities to battle a surge in Covid-19 cases, while in Germany senior politicians have floated the possibility of tough restrictions for the unvaccinated. The top US infectious disease expert, Anthony Fauci, warned that the nation is moving in the “wrong direction” in combating the new wave of the pandemic.

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