Oil Futures Down as Delta Cases Rise, Nuclear Deal Headwinds

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude contract on the Intercontinental Exchange were lower on the first trading session of August, as steady albeit slowing manufacturing growth in Europe and progress is made in Washington in advancing a bipartisan infrastructure bill but is offset by concerns over demand as COVID-19 infections continue to rise.

On Sunday, U.S. Secretary of State Antony J. Blinken issued a statement blaming Iran for the July 29 drone attack of the Mercer Street oil tanker off the coast of Oman, which killed two, joining Israel and the United Kingdom.

"Upon review of the available information, we are confident that Iran conducted this attack, which killed two innocent people, using one-way explosive UAVs, a lethal capability it is increasingly employing throughout the region," Blinken said in the statement.

Washington is considering sanctions against Iran for the attack, with the heightened tensions dimming optimism for a resumption of multilateral talks in Vienna in an effort to return the United States to the Joint Comprehensive Plan of Action. After six rounds of discussion by the Biden administration, talks were suspended in June amid presidential elections in Iran and were expected to resume following Ebrahim Raisi's inauguration as president on Thursday. Any agreement was expected to end U.S. sanctions on Iranian oil exports.

The geopolitical headwinds are realized as bullish projections for oil demand for the remainder of 2021 are under scrutiny as the Delta coronavirus variant is spreading fast globally, with daily COVID-19 cases in the United States reaching nearly 740,000 on Friday, according to Johns Hopkins COVID-19 tracker. The rapid surge in new cases globally have triggered renewed international travel restrictions, sapping potential growth in demand for jet fuel.

The increase in COVID-19 infections is also realized as a moratorium on evictions first deployed in spring 2020 in the CARES Act in addressing the outbreak of the global pandemic expired on Saturday, which could lead to millions of tenants evicted from their apartments and for nonpaying homeowners to lose their homes.

Limiting the downside is data showing economic growth continued in Europe in July, with the Purchasing Managers Index for Eurozone manufacturing beating expectations with a 62.8 reading, although down from 63.4 in June. Readings above 50 indicate expansion. Germany's manufacturing sector increased 0.8 points from June to 65.9 in July, better than expected, while down 1 point in France to a less than expected 58.

India's manufacturing sector returned to growth in July, with the index up from 48.1 in June to 55.3 last month, with India's economy hard hit by a spike in Delta-variant COVID-19 cases in the second quarter.

Manufacturing activity is expected to have edged higher in the United States in July when the Institute of Supply Management at 10 a.m. ET releases its monthly reading, which is expected to show a 0.2-point gain to 60.8.

Modest growth in manufacturing jobs is one of the factors seem to have lifted job growth in the United States to 900,000 in July from June's 850,000, with the national unemployment rate seen to have declined from 5.9% to 5.7%. The Bureau of Labor Statistics will release the nonfarm employment report 8:30 a.m. ET Friday.

Bearish concerns over demand pressured U.S. crude oil despite a weakening U.S. dollar, which fell to a 91.780 one-month low in index trading on Friday.

In early trading, NYMEX September West Texas Intermediate futures were down about $1 near $72.90 per barrel (bbl), with the ICE October Brent contract roughly $0.90 lower at $74.55 bbl. NYMEX September RBOB futures were down a little more than 2 cents at $2.3145 gallon, and September ULSD futures fell 2 cents to near $2.1755 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne