(Bloomberg) – Oil fell, capping the biggest weekly loss since October, as the spread of the delta coronavirus variant in China and elsewhere casts doubt on demand growth.
West Texas Intermediate futures fell 1.2% on Friday and 7.7% for the week. The dollar rose following a better-than-expected US employment report, weakening the attractiveness of commodities denominated in the currency. China has imposed increasingly stringent restrictions on mobility to combat the spread of the deadly variant, while daily case records have been set in Thailand and Sydney, Australia.
“The market is reacting to concerns that the delta variant, particularly in Asia, could significantly erode mobility,” said Bart Melek, head of global commodities strategy at TD Securities. “This implies that we could see a lot less price crunch than what we were seeing before this big virus problem.”
After crude soared in the first half of the year due to growing demand, the latest chapter in the pandemic has capped the prices of not only oil, but some other commodities as well. The closest WTI contract’s premium to second-month futures, known as the spread promt, has narrowed to 18 cents after hitting 72 cents a week ago, indicating lingering concerns regarding the request.
“The oil market has struggled this week,” said Jens Naervig Pedersen, senior analyst at Danske Bank A / S. “On the one hand, the markets are worried about the economic implications of the spread of the delta variant, but on the other hand, the political accommodation provides a solid backdrop.”
Despite the weak outlook for demand from Asia, there are improved indicators in the United States, where the roads have remained heavily used. The kilometers traveled by vehicles on highways in the week to August 1 correspond to the similar week in 2019, before the pandemic struck, according to the Department of Transportation. Gasoline deliveries to the Spanish market exceeded pre-pandemic levels last month.
“It’s hard not to get caught up in the headlines showing the increase in cases, especially in China,” said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd. “However, when you step back, restrictions are still in place. Slowing in most areas, demand seems to be holding up, and I think the impact on this latest wave should be significantly less than the previous ones.
–With help from Sharon Cho and Rakteem Katakey.
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