Oil Futures Waver as Delta Spike Fuels Demand Concerns

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent traded crude on the Intercontinental Exchange moved mixed early Tuesday as traders turned cautious over reports that a highly-infectious Delta variant of coronavirus triggered new travel restrictions and regional lockdowns in the European Union and Asia-Pacific, while Organization of the Petroleum Exporting Countries, Russia and partners outside the cartel are set to decide on production quotas for August.

Near 7:30 a.m. ET, NYMEX August West Texas Intermediate softened $0.58 to $72.33 per barrel (bbl) after trading at the highest price point on the spot continuous charts since October 2018 at $74.45 bbl, and ICE August Brent crude futures declined $0.43 to $74.25 bbl ahead of expiration Wednesday afternoon. September Brent expanded its discount against the expiring contract to $0.51.

NYMEX July RBOB futures edged up 0.27 cent to $2.2216 gallon ahead of expiration this week, with the August contract trading near parity. July ULSD futures eased 0.22 cent to $2.1160 gallon, with the August contract holding a 32-cent premium ahead of the July contract's expiration Wednesday.

Further weighing on the oil complex early Tuesday is a stronger U.S. dollar, that gained 0.19% against a basket of foreign currencies to trade above 92. Greenback strength comes ahead of the release of the Conference Board's Consumer Confidence index for June that is expected to improve from 117.2 in the previous month to 119.0. Consumer sentiment index released by the University of Michigan on Friday showed affluent households drove the gains in June, with 56% of responders expected a sharp drop in unemployment later this year.

"While many are optimistic about a gradual end to the pandemic, consumers still judged the risks from emerging COVID variants as appreciable," said survey's chief economist Richard Curtin.

Concerns over resurgent coronavirus came front and center this week after a highly infectious Delta variant, first detected in India, triggered new travel restrictions and lockdowns in parts of the global economy. European Union, Australia, and parts of southeast Asia issued new travel restrictions on Monday in an effort to limit the spread of the new variant as slow vaccination campaigns have been inadequate in offsetting the viral spread. Market optimism over a demand recovery following more than a year with COVID-19 was in part tied to expectations for the return of international air travel in the second half of the year. With the rapid spread of the Delta variant, some of the bullish sentiment could come undone, as traders reassess their expectations for the summer fuel outlook.

Tuesday's cautious trade also comes ahead of the monthly meeting among members of OPEC+, when the group is set to decide on production quotas for August. Market consensus calls for the 23-nation alliance to bring back a modest 500,000 barrels per day (bpd) in crude production for the next three months beginning in August, while Saudi Arabia is expected to have fully unwound its 1 million bpd of voluntary production cuts by the end of July.

However, OPEC+ has surprised markets several times since the beginning of the pandemic and might opt for a larger increase at their meeting on Thursday.

The pace at which the alliance will bring back production will ultimately depend on the success in containing the spread of the virus and the robustness of the global demand recovery. OPEC's latest forecast suggest a global supply deficit of about 1.5 million bpd in August, with the shortfall expanding to 2.2 million bpd in the fourth quarter. During the height of the pandemic, OPEC+ cut crude oil production by 9.7 million bpd and will have returned 4 million bpd of those cuts by the end of July.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges