Oil prices slipped yet another 3% this Monday, extending last week’s losses, as the Delta variant of the coronavirus is spreading rapidly among Asian countries; dollar, on the other hand, strengthen in front of the euro, further hitting oil prices.
Firstly, this Monday, China reported 125 new COVID-19 cases, up from 96 a day earlier. In Malaysia and Thailand, infections hit daily records. Such rate of infections led Asian governments; particularly the Chinese, to mandate new moving restrictions. As China is the second largest oil consumer in the world, this factor could hit the growth demand outlook.
In fact, as Reuters reports, China’s export growth slowed more than expected in July; after outbreaks of COVID-19 cases and floods, while import growth was also weaker than expected.
Secondly, a United Nation’s panel pointed out that climate change is also hitting investor’s gloomy mood; after fires in Greece have razed homes and forests and parts of Europe suffered deadly floods last month.
Consequently, Brent crude futures fell by $1.87, or 2.6%, to $68.83 a barrel this Monday; after a 6% slump last week for their biggest weekly loss in four months. On the other hand, U.S. West Texas Intermediate (WTI) crude futures fell $1.96, or 2.9%; to $66.32 after plunging by nearly 7% last week. On Monday, during the early sessions, the contract fell as low as $65.15, its lowest since May.
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Oil prices face more risk under the China virus spread
Thirdly, restrictions in China include flight cancellations, warnings by 46 cities against travel; and also limits on public transport and taxi services in 144 of the worst hit areas. RBC analyst Gordon Ramsay said in a note; quoted by Reuters, that indeed “concerns about potential global oil demand erosion have resurfaced with the acceleration of the Delta variant infection rate.”
Moreover, OANDA senior market analyst Jeffrey Halley, remarked. “Both benchmark crude contracts look vulnerable to more bad news on the virus front; focusing on mainland China.”
In addition, China’s crude oil imports fell in July; and were down sharply from the record levels of June 2020; adding more wight to the global oil demand recovery fears. Also, as said above, a stronger dollar hit oil prices; it had a rally to a four-month high.
Finally the rally happened after Friday’s stronger than expected U.S. jobs report spurred bets that the Federal Reserve could move more quickly to tighten U.S. monetary policy. A hit to the oil prices happens because A stronger U.S. dollar makes oil more expensive for holders of other currencies.
