Oil prices keep plunging as the new string of the Covid-19 virus, Delta, worry investors about the demand outlook; as cases surge worldwide, new lockdowns or moving restrictions are arising, just in the time when supply is getting greater; after the OPEC agreement, and the United States ramping up production.
Firstly, as we reported previously, oil prices have been under pressure for the last few weeks; and they have plunged well below the $70 dollars per barrel mark. In the mid time, travel restrictions are getting stronger and traffic softer, as Delta spreads all around the world.
Secondly, according to Reuters, minutes of the U.S. Federal Reserve’s July 27-28 policy meeting, showed that the spread of the Delta variant could temporarily delay the full reopening of the economy; and even restrain the jobs market.
Thirdly, Brent crude lost 80 cents, 1.2%, and closed at $68.23 a barrel. In fact, the global benchmark has lost 11% in the last 13 trading days; dating to the end of July. On the other hand, the U.S. mix, the West Texas Intermediate, settled down 1,7% to $65,46 a barrel.
Moreover, according to U.S. Energy Department data, U.S. crude inventories fell 3.2 million barrels last week; to 435.5 million barrels, their lowest since January 2020. On the other hand, the U.S. shale output is increasing to its highest levels, as we reported previously.
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Higher supply of oil could de-balance the market, as demand is lowering
On the other hand, gasoline stocks rose slightly, and gasoline product supplied to the market; which is indeed a measure of demand, was 9.5 million barrels per day, just 1% below 2019 levels.
In addition, Al Salazar, vice president of intelligence at Enverus in Calgary, said to Reuters, “In combination with the weaker demand outlook, and in combination with OPEC saying they were going to add, U.S. supply is beginning to creep up.”
Furthermore, the Organization of the Petroleum Exporting Countries, along with allies like Russia, agreed to raise output by 400,000 bpd every month for the next several months, returning some of the supply the group has held back since early 2020.
Finally, this outlook may de-balance the market and hit further oil prices. In fact, the International Energy Agency last week said that demand for crude oil was expected to increase at a slower rate over the rest of 2021 because of surging cases of the Delta variant; while OPEC said the contrary.
