(Bloomberg) — Oil extended losses after the worst week since October as a Covid-19 comeback raised concerns about the short-term demand outlook.
Futures in New York fell below $67 a barrel after sliding almost 8% last week. The resurgence has led Goldman Sachs Group Inc. to downgrade its economic growth forecast for China, which recently completed a mass testing program in Wuhan — the original epicenter of the pandemic — following new confirmed cases. Infections have also climbed in the U.S. and Thailand.
Dollar strength has also weakened the appeal of raw materials such as oil and gold. The currency was steady after jumping Friday following a robust U.S. jobs report that fueled bets the Federal Reserve may start easing its stimulus.
Oil has run into stiff headwinds this month as the fast-spreading delta variant sweeps across the globe, leading to renewed restrictions on movement in some regions and coinciding with a production boost from OPEC+. The International Energy Agency will provide an updated snapshot of the market on Thursday.
OPEC+ will make monthly supply hikes of 400,000 barrels a day from August and continue until all of its output halted during the pandemic is revived. While the latest Covid-19 flare-up is clouding the outlook, expectations are that the market will be able to absorb the additional barrels as demand accelerates.
“Oil appears to be caught up in broader market moves across the commodity complex,” said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd. “Indicators suggest demand is still robust in major markets such as U.S. and Europe, and I can’t see this sell-off continuing for too much longer if that remains the case.”
|West Texas Intermediate for September delivery dropped 2.5% to $66.59 a barrel on the New York Mercantile Exchange at 7:35 a.m. London time after falling 7.7% last week.Brent for October settlement lost 2.3% to $69.05 on the ICE Futures Europe exchange after declining 0.8% on Friday.|
Delta is also impacting the oil market structure. The prompt timespread for Brent has narrowed to 35 cents a barrel in backwardation — a bullish signal where near-dated contracts are more expensive than later-dated ones. That compares with 69 cents a week earlier.
Chinese authorities in Wuhan completed testing on 11.3 million people, covering most of the city’s population, according to a virus control briefing Sunday. In the U.S., new infection numbers spiked to more than 100,000 a day on average, returning to the levels of the winter surge six months ago.
Goldman cut its full-year gross domestic product growth forecast for China to 8.3% from 8.6%, assuming the government will bring the outbreak under control in about a month. Economic risks are building, with factory-gate inflation surging again and core consumer prices rising the most in 18 months.