Oil Gains Capped By Demand Concerns As India Imposes Covid Lockdowns

Meanwhile, the IEA reports that the global oil surplus has almost disappeared: File Image/Pixabay

Echoing trading patterns of last week, crude prices on Monday inched upward due to mainly to a weaker U.S. dollar but were capped by demand concerns as a result of rising Covid infections in India–and corresponding government lockdowns in that country.

After it was learned that Delhi ordered a six-day lockdown, joining around 13 other states across India that have imposed restrictions, Brent settled up 28 cents at $67.05 per barrel, and West Texas Intermediate ended the session up 25 cents at $63.38 per barrel.

JBC said, "This new wave of measures, while so far likely to be less stringent than what we saw in March 2020, when gasoline and gasoil/diesel demand in the country fell by close to 60 percent, is nevertheless set to weigh on transportation fuel consumption."

Jim Ritterbusch, president of Ritterbusch and Associates, added, "The primary hazard to continued oil price strength is the possible pre-emergence of COVID-19 case counts on a broad scale ... large portions of Asia are seeing a renewed increase in cases that could force a re-appraisal of recent upward global oil demand adjustments."

Still, hedge fund activity with relation to oil remains brisk: John Kemp, commodities analyst for Reuters, noted on Monday that "Hedge funds and other money managers purchased the equivalent of 19 million barrels in the six most important petroleum futures and options contracts in the week to April 13."

He added that prices are supported "By continued production restraint by OPEC+ [the Organization of the Petroleum Exporting Countries] and a strong business cycle upturn across most of North America and Western Europe."

Monday also marked a positive milestone of sorts: according to the International Energy Agency, barely a fifth of the surplus that flooded into the storage tanks of developed economies when oil demand crashed last year remained as of February.

Ed Morse, head of commodities research at Citigroup Inc., said, "What's left of the surplus is almost entirely concentrated in China, which has been building a permanent petroleum reserve."