Oil Settles Lower But Analysts Beginning To Regard Delta Woes As Transitory

Tocqueville views the energy sector overall as  “under-owned": File Image/Pixabay

The lingering effect of the International Energy Agency's report earlier this week that the Delta variant and rising Covid infections threatened demand swayed crude traders to the negative yet again on Friday, although losses for the week were considerably less severe than the previous week.

Brent on Friday settled down 72 cents, or 1 percent, at $70.59 per barrel; however, for the week it fell less than 1 percent compared to dropping 6 percent last week, its largest week of losses in four months.

West Intermediate crude settled down 65 cents at $68.44; last week the benchmark fell nearly 7 percent in its biggest weekly decline in nine months, but on Friday it was on track for a gain of nearly 1 percent.

While the IEA report effectively blocked burgeoning bullish sentiment in analytical circles, banks such as Goldman Sachs maintained that Delta's impact would be transitory, and demand recovery would continue alongside rising vaccination rates.

Jim Ritterbusch, president of Ritterbusch and Associates, added, "A recent flow of favourable U.S. macroeconomic guidance also suggests further improvement in petroleum demand once the Delta variant subsides."

John Kilduff, founding partner at Again Capital, remarked, "While the IEA's report was pretty dour on demand, in the near term, it's pretty clear that there's a supply deficit and that's likely to continue as we're seeing airline travel restrictions get lifted in the U.S."

While traders seem obsessed with near-term fluctuations in demand due to Covid, there's no denying oil prices have rebounded beyond expectations this year, and the recovery was cited on Friday by Rosneft as the key reason the Russian oil producer's second-quarter net profit showed a five-fold increase from the same period last year, to 233 billion roubles ($3.2 billion) while revenue doubled to 2.167 trillion roubles.

Despite the furor over Delta, which has caused rising infections in countries where vaccine rollout has been slow, John Petrides, portfolio manager at Tocqueville Asset Management, on Friday said the energy sector overall is "under-owned," making up only approximately 3 percent of the S&P 500, and he insisted it's a valuable asset.

As for the long-term view that oil is on its way out due to the push for renewables, Matt Maley, chief market strategist at Miller Tabak, said, "We're not going completely away from fossil fuels any time soon; it's going to take multi-decades to move away from it."

Finally on Friday, the export shortage struggles of Canada's oil sands producers due to  increasing scrutiny from courts and regulators could end as early as next month: Enbridge Inc.'s Line 3 oil pipeline from Alberta to Wisconsin could start operating as soon as mid September and transport 760,000 barrels per day, according to Bloomberg.

The pipeline would be the first new cross-border export project built between Canada and the U.S. in years.