All signs indicate that demand recovery overall is still strong, despite Delta: File Image/Pixabay
A surprise increase in U.S. crude inventories plus reports that China is experiencing a coronavirus resurgence contributed to traders' general perception of traders that the Covid variant is impacting demand recovery - and as a result, oil prices on Wednesday tumbled in excess of 3 percent.
Brent on Wednesday fell $2.03, or 2.8 percent, to settle at $70.38 per barrel, and West Texas Intermediate fell $2.41, or 3.4 percent, to settle at $68.15.
American crude supplies increased by 3.63 million barrels, the biggest gain since March, according to the Energy Information Administration; however, gasoline inventories fell by a bigger-than-forecast 5.3 million barrels, demonstrating earlier analytical contention that even as the Delta variant spreads throughout the continent, it's not enough to dent demand recovery.
Scott Sheffield, CEO, Pioneer Natural Resources
Demand's going to come back stronger in the last half of this year
Indeed, some analysts on Wednesday were dismayed that the bigger scenario of a world in healthy recovery was being overlooked: "We're seeing a continued increase in fuel consumption, which is a good sign of economic recovery," said Quinn Kiley, portfolio manager at Tortoise, adding that "While there is clearly concern about the Delta virus, overall we're seeing continued recovery on the demand side."
Accordingly, Saudi Aramco on Wednesday said it will increase its key Arab Light grade for Asia by 30 cents from August to $3 per barrel above the state company's benchmark; it is also raising pricing for other grades to the region by between 20 and 60 cents.
The increases reflect Saudi Arabia's conviction that it sees demand continuing despite media hoopla over Delta.
When asked to describe the current state of the oil market, Scott Sheffield, CEO of Pioneer Natural Resources, told Bloomberg television that "I think it's better than any time I've seen it in the past 10 years," and he credited the Organization of the Petroleum Exporting Countries' (OPEC) careful approach to easing output restraints along with the efficacy of Covid vaccines for the market fortitude.
He added that the recovery may be slower due to the Delta variant, "But it's going to roll over in my opinion: demand's going to come back stronger in the last half of this year and going into 2022."