U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday on fears that a spike in COVID-19 cases could lead to lower fuel demand, an unexpected rise in U.S. gasoline inventories and a stronger U.S. Dollar. Traders are also worried about increased U.S. production.
US Reports More than 1,000 COVID Deaths in Single Day
The United States reported more than 1,000 COVID-19 deaths on Tuesday, equating to around 42 fatalities an hour, according to a Reuters tally, as the Delta variant continues to ravage parts of the country with low vaccination rates.
Coronavirus-related deaths have spiked in the United States over the past month and are averaging 769 per day, the highest since mid-April, according to the Reuters tally.
President Joe Biden’s administration confirmed on Tuesday evening it planned to extend requirements for travelers to wear masks on airplanes, trains and buses and at airports and train stations until mid-January.
Anytime modes of transportation face restrictions even if it’s just a mask policy, there is always the possibility of lower fuel demand. If travelers sense risk then they will become less-mobile and that could be bearish for crude prices.
Good News, Bad News Weekly EIA Inventories Report
First the good news, U.S. crude oil stockpiles dropped last week to their lowest levels since January 2020, the Energy Information Administration (EIA) said on Wednesday.
Crude inventories fell by 3.2 million barrels in the week to August 13 to 435.5 million barrels, exceeding estimates for a 1.1 million-barrel drop. Crude exports rose in the most recent week to 3.4 million barrels per day (bpd).
In the bad news category, U.S. gasoline stocks rose by 696,000 barrels in the week to 228.2 million barrels, the EIA said, compared with analysts’ expectations for a 1.7 million-barrel drop.
Rising Dollar Reduces Foreign Demand for Dollar-Denominated Crude
The U.S. Dollar rose to a multi-month high against a basket of major currencies early Thursday with Federal Reserve policy makers mostly in agreement that a stimulus taper would start this year.
Since crude is a dollar-denominated asset, it becomes more expensive to holders of foreign currencies. This could weigh on demand.
Last week, the International Energy Agency (IEA) trimmed its oil demand outlook due to the spread of the Delta variant. OPEC, however, left its demand forecasts unchanged.
Traders may be starting to wonder when OPEC will lower its demand forecasts. Furthermore, some traders believe that OPEC and its allies, known as OPEC+, may leave current production levels unchanged in September, or may even lower them to make up for any lost demand.
However, it does appear that they are in no hurry to make a decision. The issue, however, could be the source of volatility during the first week of September.