Covid Fears Reinfect Crude Traders, Oil Prices Plunge Over 3%

Analysts note that Covid is affecting sentiment far more than fundamentals: File Image/Pixabay

Crude prices were off to a rocky start for August as ever-fearful traders, who last week took heed of data showing that global demand hasn't been affected by the Covid Delta variant, reversed gears on Monday on news of fresh outbreaks in China and Australia - and as a result, futures in New York declined by over 3 percent, the most in two weeks.

West Texas Intermediate slipped $2.54, or 3.43 percent, to end at $71.41 per barrel, while Brent traded down $2.35 (3.12 percent) at $73.06.

The losses were exacerbated by data indicating that China's economic activity eased in July.

Rebecca Babin, senior energy trader at CIBC Private Wealth, US, noted that China was trying to curb commodity inflation, and that "The next round of data from China on crude import numbers will be critical in figuring out how China is handling the most recent uptick in infections."

In Saudi Arabia, full-year inflation expected to be higher than bond yields led to the kingdom's benchmark Tadawul All Share Index on Monday climbing at 0.8 percent, the  highest level in more than 13 years, boosted by positive earnings announcements and higher oil prices.

Structural factors such as a growing mortgage market, shift into organized sectors, more listed companies with different economics and better liquidity are all translating into better returns for the Saudi stock market.

In other oil news, Antony Blinken, U.S. secretary of state, told reporters on Monday that "There will be a collective response" by his country, Israel, and the U.K. against Iran following a drone attack on an Israeli-linked tanker off the coast of Oman last Thursday,

Tehran denies carrying out the attack, which killed two crew members and comes at a time when major nations including the U.S. are attempting to revive the 2015 pact that limited the Islamic republic's nuclear activities in return for an easing of U.S. sanctions.

Meanwhile, Carsten Menke, analyst at Julius Baer, tried to be a voice of reason as Covid news headlines continue to influence crude trading behaviour: he said, "The wax and wane of Covid-19 waves will have more of an influence on sentiment rather than supply and demand fundamentals during the rest of the year, as we do not expect politicians to impose hard and broad-based lockdown measures anymore.

"Oil politics will remain another source of volatility, especially if prices do overshoot in summer, which would raise the pressure on producers to react."