Oil Futures Lower Friday on Lingering Demand Concerns

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange accelerated losses in afternoon trade Friday. All of the contracts, however, closed the volatile week with gentle gains despite the relentless spread of the coronavirus Delta variant and a potential tightening of quarantine restrictions in coming weeks across industrialized economies and as peak summer demand for transportation fuels winds toward its end.

While the seasonal decline in gasoline consumption in the United States and European Union is typical between August-September, this year could see a steeper drop due to the lack of commuting to work and the rising tally of COVID-19 infections. DTN Refined Fuels data showed U.S. gasoline demand down 2.6% during the week ended Aug. 6 compared to the same week two years ago, which was a further weakening from a 2.0% deficit relative to 2019 levels reported just the week prior. The U.S. Energy Information Administration forecasts gasoline consumption won't return to pre-pandemic levels even next year, averaging about 9 million barrels per day (bpd), some 300,000 bpd below 2019 levels.

The relentless rise of COVID-19 infections and souring consumer sentiment might provide some clues for the trajectory of gasoline consumption in the coming weeks. The University of Michigan on Friday morning reported the consumer sentiment index plunged a staggering 13.5% in early August to a level that was just below the April 2020 low of 71.8. The losses in confidence were widespread across income, age and education subgroups and observed across all regions. Moreover, the losses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment.

"Over the past half-century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy: the only larger declines in the Sentiment Index occurred during the economy's shutdown in April 2020 (-19.4%) and at the depths of the Great Recession in October 2008 (-18.1%)," said Surveys of Consumers Chief Economist Richard Curtin.

Following the shocking reading, the U.S. dollar index tumbled 0.57% against a basket of foreign currencies to finish at 92.510 but failed to lend support to the front-month West Texas Intermediate futures contract. NYMEX September West Texas Intermediate futures fell $0.65 to settle at $68.44 per barrel (bbl), and international crude benchmark Brent contract for October delivery declined 72 cents to $70.59 per bbl. NYMEX September RBOB contract dropped 1.28 cents to $2.2626 per gallon and NYMEX September ULSD futures plunged 2.60 cents or 1.2% to $2.0779 per gallon.

Friday's lower settlements came as traders weighed flagging demand outlook against increased vaccination rates in the U.S. and globally. The Centers for Disease Control and Prevention data showed U.S. daily count of administered vaccines nearly doubled in the last four weeks from an average of 400,000 dozes at the start of July to 828,760 as of Aug. 6. Some of the hardest-hit states are now reporting as much as a 60% surge in the number of people getting vaccinated daily. Nationwide, 71.5% of Americans have received at least one doze of the COVID-19 vaccine -- a month behind the White House deadline for July 4.

Despite increased vaccination rates and reinstated mask mandates, the seven-day moving average of new daily infections still rose 33.7% from the prior week to 89,977, stoking concerns over the worsening progression of the pandemic in the fall months.

Globally, the health crisis looks even direr, with marginal demand growth and key regions of global supply chains, like Southeast Asia and China once again imposing restrictions on movement and businesses. On Thursday, China closed the key port of Ningbo-Zhoushan, the world's largest shipping port by cargo tonnage, after a single case of COVID-19 infection sparked fears of an outbreak. The abrupt closure stands to further disrupt already strained supply chains, while raising shipping costs to the ports of North America and European Union ahead of the peak holiday season.

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

Liubov Georges