Oil slumps as global Delta variant cases rise

Commodities

Worldwide Delta Covid-19 variant cases continue to rise, putting pressure on oil prices.

Oil trading

Oil pulled back dramatically at the start of the week. Cracks in demand recovery are starting to appear, putting pressure on oil prices.

As of Monday 9th August, WTI contracts had fallen away from the $73 level seen on Monday 2nd. At the time of writing, West Texas Intermediate was trading for around $66.54.

Brent crude had suffered a similar price drop. The benchmark started the week trading at $68.99.

These key oil contracts are experiencing their worst performance since March.

Fears of new travel restrictions in key economies are weighing on recovery estimates. The market is getting anxious. Delta variant cases continue to surge worldwide, with new infections in the US reaching a six month high. Japan and China have already reintroduced travel limits in order to tackle the virus.

The latest EIA report indicates a stockpile build up after consecutive weeks of drawdowns. Storage figures for week ending 30th July showed a 3.6m barrel rise, bringing total stocks up to 439.2m barrels. This is still 6% lower than the same time last year but given the fact we’ve seen successive week-on-week drops, it’s not a great sign.

Will Wednesday’s report inject fresh hope into the markets or is another build up on the cards?

OPEC+ meets on Thursday this week. The shifting Covid-19 situation may necessitate a change in the cartel’s plans. In July, OPEC and allies agreed to begin ramping up production by 400,000bpd each month until April next year.

Everything the cartel has done during the pandemic has been to protect oil prices. In the light of price action at the start of the week, it will be interesting to see if any changes to OPEC+’s plans are made.

Natural gas trading

Natural gas traders should be looking to the warm weather with glee this week as prices continue to perform strongly.

As of Monday morning, gas extended gains, trading for around $4.161. As temperatures rise across the US, so do does price action. Cooling gas demand is high right now.

Natural Gas Weather’s forecast at the start of the week reads: “National demand will be very strong this week as upper high pressure rules most of the US w/highs of upper 80s to 100s, including highs of 90s into major East Coast cities. The hottest temperatures will be over West, Texas, and Plains where highs will reach the mid-90s to 100s, including highs of 90s and 100s across the Northwest mid-week.

“Cooler exceptions will be across N. Plains as a weather system brings showers and highs of 60s to 80s, then finally ejecting and tracking across the Great Lakes late in the week. Overall, HIGH to VERY HIGH national demand this week.”

LNG prices continue to hit new heights in Asian markets. Spot prices were as high as $17 per mmBtu last week. Hot temperatures are driving demand across the region, which could play into US LNG suppliers’ hands.

Today’s EIA storage report will be watched closely by the markets. Broadly speaking, inventories have trended towards fresh week-on-week injections but year-on-year drawdowns.

Take the last EIA inventories report for example. Working gas in storage was 2,727 Bcf as of Friday, July 30, 2021. This represents a net increase of 13 Bcf from the previous week, but a 542 Bcf reduction compared with the same period in 2020.