Oil steadies after 7% price slump

Tokyo — Oil prices stabilised on Tuesday after slumping about 7% in the previous session amid a broader market retreat led by concerns about rising Covid-19 infections, which came just as producers signed a new supply deal.

Brent crude gained 1c to $68.63 a barrel by 4.12am GMT. The US crude contract for August delivery, which expires later on Tuesday, was up 15c at $66.57 a barrel. US crude for September delivery was up about 9c at $66.44 a barrel.

The sell-off, which pushed prices to their lowest in two months, “was largely due to concerns centred on the Delta variant and macro backdrop rather than a significant rethink of forward looking oil fundamentals”, RBC Capital Markets said in a note.

It came after oil cartel Opec reached a compromise on Sunday to increase output, but that was more “an unfortunate coincidence rather than a catalyst”, RBC said, noting equities fell sharply and bonds rose.

That Delta variant of Covid-19, which is more contagious than earlier ones, is now the dominant strain worldwide, US officials have said. It has been detected in about 100 countries and patchy rollouts of inoculation programmes in many places are undermining the battle against the virus, raising the prospect of more lockdowns that would hit demand for oil products.

Still, RBC said high frequency indicators showed that restaurant bookings over the weekend in the US, the world’s biggest oil consumer, were at pre-Covid levels, while domestic flights were at the highest level since the pandemic started.

The Opec deal takes away more of the supply curbs that buttressed the market for a year. The cartel is keeping about 5.8-million crude barrels a day out of the market, a figure that will decrease by 2-million barrels a day by the end of 2021.

Despite the latest Covid-19 concerns and crude price falls, some analysts expect the increased supplies to be soaked up by a gradual return of economic activity.

“This deal should provide some stability to the market over the coming months … and may ultimately support the market higher,” SSY Futures in Singapore said in a note.

Reuters