The oil price has been on a bit of a roll in recent weeks but the momentum stopped this week as prices fell to the lowest level since May.
The uncertainty around the pandemic has the market worried about demand and in Friday trading, Brent crude was priced around US$65 with West Texas Intermediate (WTI) holding on around US$63 a barrel.
The market watched the oil price drop day by day this week, following weakness in the commodities and the global equities market.
No end in sight
There’s no end in sight in any country as to the end of this pandemic as news of the Delta variant continues to threaten recovery. A note from Commerzbank said “concerns about demand due to the global spread of the Delta variant are continuing to preclude any higher prices”.
Analysts had talked about a stronger oil price for the remainder of the year and a recovery is still possible given we have more than four months to go. Recovery from the pandemic continues to be a major concern, says Dr. Yousef Alshammari, CEO of C-Markits.
“While the observed path may well be a market correction following a period of significant speculation on demand recovery, the markets now seem to have realized the potential impact of the delta variant of COVID-19 on global oil markets.”
There’s been recent calls from the US to OPEC to increase supply.
Dr. Alshammari also reminded us of the upcoming OPEC+ meeting and said he believes OPEC will not increase supply, particularly if prices continue to deteriorate.
The US has been putting pressure on OPEC to help keep the price lower, but Alshammari says he does not think this will influence OPEC’s outcome.
“That decision is purely based on fundamentals and technical issues so I don’t think they will take any political influence on these technical decisions.”
OPEC+ has always agreed it will end its supply cuts in September next year.
The global economic performance continues to worry the market. Official Chinese market data showed that the Chinese economy had slowed and refinery output was at its lowest level in more than a year.
Looking at the US situation, crude oil inventories continue to fall to a lower level than 2019. American oil production remains steady, just over 11 million barrels a day.
The US has experienced a weaker than average driving season, according to the Energy Information Administration with signs of demand growing weaker. Commerzbank noted that while the driving season has three weeks to go “it is already clear that it will not meet the high expectations”.
The oil price got off to a healthy start in the first half of the year with rising demand and price to match. It appears to be cooling off as the summer season ends, but the year has months to run and OPEC will be looking to the winter demand in its next meeting.