Oil prices steady as investors bet demand growth will outlast Delta variant

SINGAPORE (Bloomberg) --Oil steadied after a two-day advance as investors bet the global demand recovery will remain intact despite the latest wave of Covid-19 that’s led to tighter restrictions on movement in many countries.

Futures in New York traded near $69 a barrel after rising more than 4% over the previous two sessions. While Goldman Sachs Group Inc. estimated the net impact of the delta virus variant on oil demand is likely to be moderate, the International Energy Agency cut its global consumption forecasts “sharply” for the rest of this year and predicted a new surplus in 2022.

The rebound in key economies such as the U.S. and Europe has helped to drain bloated stockpiles built up during the pandemic and driven prices higher, but the latest wave is an indication that the recovery will be bumpy. Steps to rein in the Covid-19 resurgence, particularly in China, are clouding the outlook.

“If outbreaks spread and rapidly increase in numbers, there is no doubt that China will use its go-to playbook of aggressive mass lockdowns,” said Jeffrey Halley, a senior strategist for Oanda Asia Pacific Pte. “That potential situation is the main threat that I see to global oil prices.”

President Joe Biden, meanwhile, urged OPEC to boost supply more quickly to make gasoline more affordable for Americans. Crude prices dropped after the comments on Wednesday but reversed losses before the end of the session. OPEC+ has agreed to hike production by 400,000 barrels a day each month from August until all of the output halted during the pandemic is revived.

Prices:

• West Texas Intermediate for September delivery was little changed at $69.26 a barrel on the New York Mercantile Exchange at 9:06 a.m. in London after rising 4.2% over the past two sessions.
• Brent for October settlement gained 0.1% at $71.53 on the ICE Futures Europe exchange after climbing 1.2% on Wednesday.

U.S. gasoline stockpiles dropped by 1.4 million barrels last week, the fourth straight weekly draw, according to the Energy Information Administration. Crude inventories fell by 448,000 barrels, smaller than the median estimate in a Bloomberg survey, which forecast a decrease of 750,000 barrels.

Delta’s spread has been reflected in a weakening of oil’s market structure. The prompt timespread for Brent was 40 cents a barrel in backwardation -- a bullish signal where near-dated contracts are more expensive than later-dated ones. That compares with 92 cents at the end of July.

“Markets have so far been keen to overlook short-term demand weakness brought about by the virus,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. There may be a pullback if the outbreaks don’t ease, he added.