News Wire — Oil headed for the biggest weekly drop since early April as countries in Asia continue to fight persistent Covid-19 outbreaks, highlighting the patchy recovery from the pandemic even as U.S. demand picks up.
West Texas Intermediate fell 0.6%, taking the week’s loss to more than 2%, the most since the period to April 9. Singapore will reimpose curbs, Japan plans to extend restrictions, and China saw its first infections in about a month, just as key oil importer India continues to report more than 300,000 cases a day. Crude’s weakness on Friday came amid a broad retreat in commodities.
While oil has rallied this year as the roll-out of vaccines aids demand, the gains have stalled since early March amid virus flare-ups in parts of Asia, especially India. This week’s decline in prices has come despite a positive market assessment from the International Energy Agency that showed the global glut that built up last year has been cleared. In addition, Federal Reserve policy makers signaled continued backing for the U.S. economy.
“The rising cases in India and some parts of Southeast Asia and Latin America illustrate risks to oil demand,” said Victor Shum, vice president of energy consulting for IHS Markit, commenting before Singapore’s raft of fresh restrictions were announced. “But the general market has great expectations for demand to materialize later this year.”
Beyond Asia, the recovery in the U.S. is on a more solid footing, boding well for energy consumption in the world’s largest economy. In a sign of progress on Thursday, President Joe Biden’s administration announced that fully vaccinated Americans can ditch masks in most settings.
– WTI for June delivery fell 0.6% to $63.41 a barrel on the New York Mercantile Exchange at 7:05 a.m. in London.
– Brent for July settlement eased 0.7% to $66.61 a barrel on the ICE Futures Europe exchange.
– Prices are 2.4% lower this week.
In a sign of India’s sustained struggle with the latest outbreak, some local ports, including Karaikal in Pondicherry, have declared force majeure due to staffing shortages. Still, major refiner Indian Oil Corp. has issued three tenders to buy oil for loading in the next two months.
“The movement of oil, commodities and equities over the last few days were related and tied to fears of inflation and compounded with the shutdown in Colonial Pipeline,” said Shum, referring to the U.S. products pipeline that was forced offline by a cyberattack. It has since started to resume flows.
Brent’s prompt timespread was 18 cents a barrel in backwardation. While that’s a bullish pattern — with near-term prices above those further out — it’s down from 49 cents two weeks ago.
*Sharon Cho – Rigzone