Brent crude slumps to lowest since May

London — Oil dropped to $66 a barrel on Thursday, its lowest since May, pressured by concerns about weaker demand as Covid-19 cases rise, a stronger US dollar and a surprise increase in US petroleum inventories.

Rising cases of the Delta variant in areas of low vaccination is driving transmission of the coronavirus, the World Health Organisation said. Coronavirus-related deaths have spiked in the US over the past month.

“The longer-than-anticipated battle against the invisible enemy has made investors cautious and pragmatic, leading to gradually softer prices,” said Tamas Varga of oil broker PVM.

“The potential withdrawal of monetary support, the chaotic Taliban takeover of Afghanistan that threatens with another migrant crisis, and worries about the continuous spread of the virus keep the dollar in demand, which, in turn, acts as a break on any attempted oil-price rally.”

The dollar hit a nine-month high, weighing on dollar-priced commodities. A strong dollar makes oil more expensive in other currencies and tends to weigh on prices.

Brent crude was down $2.10, or 3.1%, at $66.13 at 9.05am GMT, after touching its lowest since May 21. US West Intermediate (WTI) fell $2.28, or 3.5%, to $63.18 after slumping as low as $62.96, also its lowest since May 21.

Brent and US crude have declined for six days in a row, the longest losing streak since a six-day drop for both contracts that ended on Feb. 28, 2020.

“Concerns about dampening demand expectations as a result of an increase in coronavirus cases worldwide have contributed to the drop,” said Naeem Aslam of broker Avatrade.

The International Energy Agency last week trimmed its oil demand outlook as a result of the spread of the Delta variant. Opec, however, left its demand forecasts unchanged.

An unexpected rise in US petroleum inventories in a weekly supply report added to demand concerns, given demand for the motor fuel typically peaks during the northern hemisphere summer.

The strong US dollar is adding to the pressure. The dollar has rallied on expectations that the Federal Reserve will start tapering its stimulus this year. 

Reuters