Oil in Longest Run of Declines Since 2019 After Fed Taper Signal

Source: By Ari Hawkins, Bloomberg • Posted: Sunday, August 22, 2021

Oil is headed for its longest stretch of declines since 2019 as the Federal Reserve’s signal it will start tapering stimulus promoted a rally in the dollar, while concerns about global energy demand grow as the delta variant of Covid-19 rages.

West Texas Intermediate futures fell for a seventh day, taking the week’s drop to about 7.6%. Other raw materials including copper and iron-ore fell on Thursday following the Fed’s signal. The Bloomberg Dollar Spot Index has risen every day this week, making commodities priced in the currency less appealing. The pandemic remains a threat to energy demand, especially across Asia, with key importer China restricting mobility to combat an outbreak.

“It’s an exceptionally rare event for oil to fall for such an extended period,” said Thomas Finlon, director of Energy Analytics Group LLC. “External factors including the ongoing effects of the delta variants’ growth and the behavior coming out of the federal reserve, is proving surprisingly significant to investors.”

Crude has declined this month along with other commodities

Crude’s weakness comes as expectations ease for further large inventory draws in the coming months. Bank of America said prices will probably be range-bound in the second half of the year with more steep drops in stockpiles unlikely. The price plunge may force OPEC+ to pause its next planned production increase, according to Citigroup Inc.

“We have now priced down to a level reflecting more sideways inventories, with demand pain from Covid-19 together with more from OPEC+ on supply,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “But OPEC+ should be in fairly good control of the market still.”

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The pandemic continues to disrupt plans to restart economic activity, crimping mobility and demand for fuels. In Australia, Sydney’s two-month long lockdownwill be extended until at least the end of September. In the U.S., more companies announced plans to keep workers at home as the virus spreads. Brent crude is also sinking. The international benchmark is headed for its longest run of losses in more than three years, and the commodity got close to falling below $65 a barrel for the first time since May.

  • WTI for September delivery, which expires Friday, fell 46 cents to $63.23 a barrel by 10:36 a.m. in New York
    • Prices are in the longest losing streak since October 2019
  • Brent for October settlement declined 40 cents to $66.05 a barrel
    • Brent is down for a seventh day, its longest run of losses since February 2018

Despite lower headline prices and the commodity being unable to shake investors’ risk averse mood as of late, Brent’s nearest timespread has maintained backwardation of 41 cents. That indicates a more bullish long term outlook, after it slumped to an 11-week low on Monday. The number of people in the U.S. getting a first dose of a Covid-19 vaccine has risen to almost half a million a day, a level last seen at the end of May, as the overall vaccinations rate in the U.S has increased to 60%.

“The people who are pessimistic about delta will tell you prices will continue to slump into the future,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “While that’s certainly possible, if we continue to see positive data coming out of the White House, and OPEC is able to modify production as needed, it’s very possible we’ll see a rise in the near future.”

Related coverage:
  • U.S. shale output is rising again just as a resurgence in Covid-19 cases eats away at driving demand in the biggest oil consumer.
  • Royal Dutch Shell Plc’s Nigerian venture lost the right to operate an oil site after a court ruled the company wasn’t entitled to renew a lease first granted in 1989.

— With assistance by Saket Sundria, and Alex Longley