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Oil was hit with renewed selling pressure on Monday, falling below $70 a barrel and adding to last week’s steep losses on growing concerns about the Delta coronavirus variant sapping demand in Asia.
Brent, the international crude oil marker, fell as much as 4 per cent to $67.87 a barrel, extending last week’s 7 per cent drop. US oil benchmark West Texas Intermediate was also down by more 4 per cent to $65.33 a barrel. It slumped more than 7 per cent last week — its steepest fall in nine months.
China, the world’s biggest oil importer, is fighting its worst Covid outbreak since the start of the pandemic and has tightened travel restrictions and started mass testing in an effort to try and contain the virus.
“This flurry of tough epidemic controls has dented the country’s fuel demand outlook,” said Stephen Brennock, analyst at PVM, an oil brokerage. “What is more, as well as being under a Covid cloud, China’s oil consumption is also under pressure from signs of a cooling economy.”
Data released at the weekend showed China’s oil imports remained subdued in July at 9.7m barrels a day, down from 9.8m b/d in June and significantly lower than the same month a year ago when they hit 12.1m b/d, according to ING. Cumulatively, crude oil imports are down 5.6 per cent year on year in 2021.
Wenyu Yao, senior commodities strategist at ING, said high oil prices, limited import quotas, especially for private refiners, and refinery maintenance had also affected crude oil demand in China.
“Disruptions to port operations on the east coast due to typhoon In-Fa at the end of July, also appear to have weighed on crude oil imports for the month,” she said.
A stronger US dollar, which makes crude more expensive for holders of other currencies, has also hit the oil market. Stronger than expected jobs data triggered a sharp rise in the US currency on Friday as traders reassessed expectations for early tapering of economic support.
In spite of the recent pullback, many analysts said the risks to oil demand from the Delta variant were overblown and oil market fundamentals looked strong.
“Economic growth is still on track and forecasts are still predicting robust demand growth over the remainder of the year. All the while, a cautious Opec is still at the helm of the supply side of the oil equation,” said Brennock, referring to the cartel of major oil producers led by Saudi Arabia.
The group known as Opec + has agreed to a monthly supply increase of 400,000 b/d from August, to continue until it has reversed all of the production cut during the pandemic.