Oil Regains Footing After Three-Day Slide Driven by Delta Surge

(Bloomberg) -- Oil edged forward this morning, after falling for three consecutive days, as investors weigh the threat to demand from the delta coronavirus variant.

West Texas Intermediate futures fluctuated between minor gains and losses, after dipping almost 3% over the previous three sessions. U.S. gasoline consumption fell for a third week, according to a survey by Descartes Labs, while data from China on Monday revealed a slowdown in the economy last month.

“Investors are looking to that economy as a proxy for global demand, and as economic activity data continues to show weakness, that doesn’t bode well for crude,” says Bill O’Grady, chief market strategist at Confluence Investment Management. “But traders are also hedging their bets of the expectation of a big draw in inventory, and we might be getting to a point where the downturn eases off in the short term.”

After a vigorous rally in the first half of the year, crude’s advance has been checked in recent weeks. The delta variant has spurred fresh curbs on mobility in many nations including China, harming energy consumption. Against that backdrop, JPMorgan Chase & Co. has been among banks reducing oil price forecasts. “China is the world’s engine for participated demand growth,” says Thomas Finlon, director of Energy Analytics Group LLC. “When demand shows signs of a downturn, you can be sure the effects will spread.” 

While demand has been challenged, the Organization of Petroleum Exporting Countries and its allies including Russia have stayed the course in relaxing their output curbs imposed in the early phase of the pandemic. Supplies will rise by 400,000 barrels a day this month.

With prices softening, OPEC+ delegates said they don’t see a need to accelerate the revival of output, despite a call from U.S. President Joe Biden last week for the cartel to restore more production to bring gasoline prices down. The group’s next regular meeting is set for Sept. 1.

More stories like this are available on bloomberg.com

©2021 Bloomberg L.P.