Oil prices drifted higher on Friday but remained set for their biggest weekly drop since March. Concerns about the impact of travel restrictions on fuel demand continue to beset the oil industry.
By 0940 GMT, Brent crude oil futures were up 39 cents at $71.68 a barrel. Moreover, the U.S. West Texas Intermediate (WTI) crude futures rose 39 cents to $69.48. Albeit, both contracts lost 6% this week.
Howie Lee, an economist at Singapore bank OCBC said that the price action they see now is really a function of the macro picture. “The Delta variant is now really starting to hit home and you see risk aversion in many markets, not just oil, ” he said.
Japan is set to expand emergency restrictions to more governmental bodies, while China has imposed curbs in some cities and also cancelled flights.
In a report, ANZ said that at least 46 cities have advised against travelling and authorities have suspended flights and stopped public transport. It said, this could impact oil demand as it comes towards the end of the summer travel season.
Daily new COVID-19 cases in the U.S. have crept higher to a six-month high.
However, rising tensions between Israel and Iran supported oil prices.
Bank of America (NYSE:BAC) analysts said that OPEC+ supply hikes should still leave the market in deficit in 2021.
China’s fuel demand is on track to hit record highs this year. A rebound in car sales and domestic air travel is expected. Analysts say, that’s even as a resurgence of COVID cases slows movement in some cities in the near term.
That is also despite a slowing growth for the main industrial fuel, diesel. Overall consumption of gasoline, diesel and aviation fuel in the world’s top crude oil importer is expected to grow by 7% to 11% in 2021. That is to a record between 8.4 million and 8.9 million barrels per day, analysts at consultancy SIA Energy, IHS Markit and Energy Aspects estimated.
By comparison, the International Energy Agency (IEA) in March forecast China’s demand for gasoline, jet fuel and diesel would rise by 6.5% to 8.2 million bpd this year.
The country’s strong growth in fuel use has helped stoke a 50% jump in global crude oil prices from last year. Analysts say, the overall growth trend remains intact, even if the latest outbreaks of the COVID-19 Delta variant across 17 provinces are expected to constrain travel in the near term.
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