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Delta-variant cases continue to weigh on oil markets as crude prices attempt to stabilise. Meanwhile, natural gas appears to be on the cusp of another strong rally despite weekend pullbacks.

Oil trading

Oil started off the week on a subdued footing once again.

The demand picture is under further scrutiny amidst rising Delta variant COVID-19 cases worldwide.

The IEA says it has sharply downgraded its H2 outlook.

“Growth for the second half of 2021 has been downgraded more sharply, as new COVID-19 restrictions imposed in several major oil-consuming countries, particularly in Asia, look set to reduce mobility and oil use,” the Paris-based IEA said in its monthly oil report. “We now estimate that demand fell in July as the rapid spread of the COVID-19 Delta variant undermined deliveries in China, Indonesia and other parts of Asia.”

Goldman Sachs has recalculated its oil forecasts too. It has dropped its global oil deficit predictions to 1 million bpd from 2.3 million bpd in the short term, although it does still expect demand to rise alongside vaccination rates worldwide.

On the other hand, OPEC+ is sticking to its script. It has yet to change its predictions. But with the cartel ramping up production from August onwards, OPEC+’s efforts to balance supply and demand could backfire and force prices downwards. An oil glut is no good for suppliers after all.

WTI crude was trading for $66.95 on Monday morning. Brent prices were floating around the $69.45 level. Both benchmarks had stayed relatively flat at the time of writing on Tuesday 18th August.

We’re due the latest EIA crude storage reports today. Previous reports had shown a small build up, but the most recent figures suggest this was an anomaly.

For the week ended August 6th, US commercial crude inventories dropped 0.4m barrels. Storage levels were 6% below those from this time in 2020. Will we see a higher drop today?

On a more positive note, oil rig counts are up. Baker Hughes says nine rigs were added this week. Total US operational oil rigs now stands at 397 – up 172 from this time last year.

Natural gas trading

After weeks of strong levels, natural gas prices pulled back on Friday. As of Monday, gas had been trading at its lowest levels since July 28th. Prices had reached around the $3.830 mark.

Come Tuesday, and prices were once again heading back towards $4.00.

Natural Gas Weather called for moderate-to-high gas demand at the start of the week, citing high temperatures in the West, Plains and Texas as demand drivers.

However, current price action suggests traders have priced in peak summer temps. We may be looking at a loosening of the supply/demand balance, which may also explain why prices have started to drop away.

But with prices on Tuesday reversing the downward trend, it may be the case that traders are bracing for further hot weather. It’s an interesting scenario. One on hand, it appeared that gas had run out of steam. Now, it’s gaining momentum once more, so it appears we’re not out of cooling season by any means, despite September being only two weeks away

US working gas in storage was 2,776 Bcf as of Friday, August 6, 2021, according to EIA estimates. This represents a net increase of 49 Bcf from the previous week.

We’re still in the midst of injection season. There’s another twelve weeks left before a generalized shift towards winter demand season.

Anything could happen to turn the market bullish or bearish during that time, but it appears we’re experiencing a summer-to-autumn price correction right now, despite the current price rally.

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