Oil prices fell on Monday as concerns about fuel demand from the spread of COVID-19 variants and floods in China offset expectations of thight supplies though the rest of the year.
Brent crude future for September fell 44 cents, or 0.6% to $73.66 a barrel by 0432GMT while U.S. Texas Intermediate crude was at $71.62 a barrel, down 45 cents.
Coronavirus cases continued to rise over the weekend with some countries posting record daily increases and extending lockdown measures that could slow oil demand. China, the world’s largest crude importer, has also seen a rise in COVID-19 cases while the nation battled severe floods and a typhoon in central and eastern parts of country.
Also, Beijing’s crackdown on the misuse of import quotas combined with the impact of high crude prices could see China’s growth in oil imports sink to the lowest in two decades in 2021, despite an expected rise in refining rates in the second half.
‘The delta varian 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 Sinfapore’s Phillips Futures, referring to impendent refiners.
He added that investors are looking ahead to the next Federal Reserve meeting and U.S. oil invetories data later this week for price direction.
However, strong U.S. demand and expectations of thight supplies are underpinning prices, enabling both contracts to recover from a 7% slump last Monday to mark their first gains in 2-3 weeks last week.
‘Bargain hunters came in droves when Brent got below $70 and the economic demand for energy looks robust’, Howie Lee, an economist at Singapore’s OCBC Bank said.
‘Demand data especially from the U.S. continues to be strong and had reduced those concerns’.
Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Eporting Countries and their allies to raise production through the rest of the year.
The prospect of a swift return of Iranian supplies is diminishing as talks to revive a 2015 nuclear deal have been pushed back to August. Meanwhile, the United State is considering cracking down on Iranian oil sales to China as it braces for the possibility that Tehran may not return to nuclear talks or may adopt a harder line whenever it does, a U.S. official said.