Oil steady as Delta variant casts shadow on demand outlook

International Energy Agency reduces its demand forecasts for the rest of the year

The Delta variant of coronavirus has interrupted a rally that pushed oil prices more than 50 per cent higher in the first half of the year. Reuters

Oil steadied at the end of a volatile week in which the fast-spreading Delta variant of the coronavirus continued to cloud the demand outlook.

Futures traded near $69 a barrel in New York after slipping on Thursday. The latest Covid-19 wave is leading to tighter curbs on movement around the globe, although there are mixed assessments on its impact.

The International Energy Agency reduced its demand forecasts for the rest of the year, while Goldman Sachs Group predicts only a transient hit to consumption.

“This week has laid bare the contrasting views on the impact of the new wave of Covid caused by the Delta variant on the world’s appetite for oil,” said Stephen Brennock, an analyst at PVM Oil Associates in London. “Consensus is a rare commodity.”

Delta has interrupted a rally that pushed oil prices more than 50 per cent higher in the first half of the year as major economies such as the US got moving again. A critical concern is the flare-up in China, where authorities are taking an aggressive approach to containing the outbreak.

Oil’s market structure has also weakened. Brent’s prompt timespread was 42 cents in backwardation – a bullish signal where near-dated contracts are more expensive than later ones. That compares with 92 cents at the end of July.

Global oil demand “abruptly reversed course” last month, falling slightly after surging by 3.8 million barrels a day in June, the IEA said in its monthly market report on Thursday. The drop in consumption comes as Opec+ increases output with a goal to steadily revive all production halted during the pandemic.