Oil price drops to $66, lowest since May
Oil price on the international market has dropped below US$66 a barrel on Thursday, its lowest since May this year.
This has increased the concerns about weaker demand as COVID-19 cases rise, a stronger US dollar and a surprise increase in US gasoline inventories.
The World Health Organisation (WHO) has attributed the increasing spread of the more deadly variant of the COVID-19 (Delta variant) to low vaccination in areas across the world as the driving force of the transmission.
WHO also notes that coronavirus-related deaths have spiked in the United States over the past month, contributing to the low demand for petroleum products, reducing oil prices.
“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 Oil Associates.
“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 brake on any attempted oil-price rally. The dollar hit a nine-month-high, weighing on dollar-priced commodities,” Tamas Varga added.
READ ALSO: Delta Variant Spread, A Big Blow To Oil Demand Outlook – IEA Predicts
Brent Crude was down US$1.87, or 2.7%, at US$66.36 at 1025 GMT, after touching its lowest since May 21. The US West Intermediate (WTI) fell US$1.96, or 3%, to US$63.50 after falling as low as US$62.83, also its lowest since May 21.
Both Brent and the US crude have declined for six days in a row; the longest losing streak since a six-day drop for both contracts ended on February 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 Avatrade, a broker.
Last week, the International Energy Agency trimmed its oil demand outlook due to the spread of the Delta variant. OPEC, however, left its demand forecasts unchanged.
An unexpected rise in US gasoline inventories in a weekly supply report added to demand concerns, given that demand for motor fuel typically peaks during the summer of the Northern Hemisphere.
The strong US dollar adds to the pressure and has rallied on expectations that the Federal Reserve would start tapering its stimulus this year.
Analysts have observed that a strong dollar makes oil more expensive to other currency holders and tends to weigh on prices.