Analysts say demand recovery expectations are not being met: File Image/Pixabay
For the sixth straight session, concern over the demand impact of the Covid Delta variant caused oil to drop on Thursday, this time to the lowest level since May.
West Texas Intermediate slid 2.7 percent to settle at $63.69 per barrel, while Brent declined 2.61 percent to $66.45 per barrel.
Stoking investor fear was Energy Information Administration data released Wednesday showing a surprise build in U.S. gasoline stocks; this caused Commerzbank analysts to remark, "Though the summer driving season still has three weeks to go, it is already clear that it will not meet the high expectations."
Giovanni Staunovo, analyst, UBS Group
Demand will continue to recover in an uneven way
Despite global vaccination programs causing hugely decreased death and hospitalization rates during this latest wave of Covid compared to earlier waves throughout 2020, fear of the Delta variant seems to have crippled reason: on Thursday London's FTSE 100 also fell as mining and energy stocks tracked a slump in commodity prices on signs of slowing global economic growth.
Oil's slump can't fully be blamed on Covid concerns, however: it was also apparently pressured by the U.S. Federal Reserve suggesting it will soon wind down its bond-buying program that kept the economy going through the worst of the pandemic crisis.
But AG Miner stated, "With OPEC [the Organization of the Petroleum Exporting Countries] managing to retain fairly tight control on output and demand recovering close to pre-pandemic levels, it would take a significant escalation of global infection rates and widespread application of lockdowns to precede a prolonged fall in oil prices.
"Today's oil price softening may last no more than a few months before we see prices back about $70 again."
Giovanni Staunovo, an analyst at UBS Group, was similarly inclined to see a light at the end of the tunnel; he said, "Demand will continue to recover in an uneven way over the coming weeks and the oil market remains under-supplied, so that should still support prices down the road."