Oil Steady in Undersupplied Market but Virus Clouds Demand

By Noah Browning

Brent crude futures for September were up 4 cents at $74.14 a barrel by 1342 GMT while U.S. Texas Intermediate crude slipped by 11 cents to $71.96.

Both benchmarks fell by more than $1 a barrel in earlier trading.

Coronavirus cases continued to rise over the weekend, with some countries reporting record daily increases and extending lockdown measures that could slow oil demand. China, the world’s largest crude importer, has also registered a rise in COVID-19 cases.

Furthermore, Beijing’s crackdown on the misuse of import quotas combined with the impact of high crude prices could send growth in China’s oil imports to its slowest in two decades this year despite an expected rise in refining rates in the second half.

“The Delta variant is still spreading and China has started to clamp down on teapots, so their import growth would not be that much,” said Avtar Sandu, a senior commodities manager at Singapore’s Phillips Futures, referring to independent refiners.

Strong U.S. demand and expectations of tight supplies have helped both contracts to recover from a 7% slump last Monday to mark their first gains in two to three weeks last week.

Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, to raise production through the rest of the year.

“There is seemingly a battle within the energy complex between the prevailing supply deficit engineered by OPEC+ and the threat of the COVID-19 Delta variant in regions with low vaccination rates,” said StoneX analyst Kevin Solomon.

“The slow take-up of vaccinations will continue to limit some upside in oil demand in those regions, and there will be intermittent spells in the recovery in the coming months.”

(Additional reporting by Florence TanEditing by Bernadette Baum and David Goodman)