Oil prices were down this Friday, accumulating its seventh week straight loss; also, nearing a three-month low record and adding a weekly loss of 7%, as Reuters reports. Experts agree on the fact that Delta variant is the main threat for oil demand.
Firstly, ANZ commodity analysts said in a note, quoted by Reuters, “The spread of the Delta variant amid moderating economic growth; and the prospects of tighter monetary policy are creating short-term ripples in the commodity market.”
Secondly, another factor for concern is investors aversion to risk, especially as the dollar is heading to a nine-month high record; when dollar rises, it becomes more costly for investors in foreign countries to hold to their oil value, further hitting prices.
Thirdly, the Delta variant is creating an uncertainty environment, also increasing restrictions on mobility; this is the main factor for concern; and has been for a few weeks, as we have reported previously.
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End of summer holidays to further hit oil demand
Moreover, Brent crude fell 69 cents, or 1%, to $65.76 a barrel, near its lowest since May and down almost 7% for the week. While the U.S. West Texas Intermediate (WTI) crude for September, due to expire on Friday, fell 68 cents, or 1.1%, to $63.01 a barrel; and was down almost 8% for the week.
In addition, oil specialist, Margaret Yang, a strategist at Singapore-based DailyFX, said. “The latest lockdowns in major economies around the world have likely harmed the economic activities; and growth forecasts in the months to come. Japan has extended its emergency lockdown and confirmed cases are on the rise; especially in South Korea, Malaysia, Philippines, Vietnam and Thailand.”
Furthermore, China has imposed new restrictions with its “zero tolerance” coronavirus policy, affecting shipping and global supply chains, and the United States and China have imposed tit-for-tat flight capacity restrictions. Meanwhile Delta variant outbreaks in Australia and New Zealand have also sparked strict lockdowns
Finally, the end of the U.S. peak demand in gasoline, as well as the end of the summer holidays in Europe and the U.S. are expected to deepen the hit on oil demand. On aviation, Stephen Innes, managing partner of SPI Asset Management, said. “Aviation remains the weakest component of global demand at the moment; and the risk of further restrictions on domestic and international travel due to the Delta variant will be a key variable for oil over the remainder of H2; particularly as the U.S. driving season ends.”