PremiumOil headed for its longest stretch of daily declines since 2019 as the U.S. Federal Reserve’s signal it will start tapering stimulus promoted a rally in the dollar, and concerns continue to mount about global energy demand.
West Texas Intermediate futures fell for a seventh day, taking the week’s drop to 7.3%. Other raw materials including copper and iron-ore dropped on Thursday following the Fed’s signal. The Bloomberg Dollar Index has risen every day this week, making commodities priced in the currency less appealing.
Oil has been hit this month by the prospect of the Fed cutting back on its asset purchases despite the spread of the delta coronavirus variant risking an economic revival. The pandemic remains a threat to energy demand, especially across Asia, with key importer China restricting mobility to combat an outbreak.
Crude’s bout of weakness comes as expectations ease for further large inventory draws in the coming months. Bank of America said prices are likely to be rangebound in the second half of the year as delta continues to spread, and more steep drops in stockpiles are unlikely. The price plunge may force OPEC+ to pause its next planned production increase, according to Citigroup Inc.
“We have now priced down to a level reflecting more sideways inventories, with demand pain from Covid-19 together with more from OPEC+ on supply," said Bjarne Schieldrop, chief commodities analyst at SEB AB. “But OPEC+ should be in fairly good control of the market still."
The pandemic continues to disrupt plans to restart economic activity, crimping mobility and demand for fuels. In Australia, Sydney’s two-month long lockdown will be extended until at least the end of September. In the U.S., more companies announced plans to keep workers at home as the virus spreads.
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