Oil Prices Continue Weak Start to Week as Demand Worries Shackle Bulls By

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By Yasin Ebrahim – Oil prices continued their weaker start to the week Tuesday, on signs further trouble is brewing on the demand side in Asia as the Delta variant continues to run rampant and threaten travel.

On the New York Mercantile Exchange, for September delivery fell 70 cents to settle at $66.59 a barrel, while on London’s Intercontinental Exchange (NYSE:), slipped 48 cents to $69.03 a barrel.

China, the world’s largest energy consumer, reported that daily crude processing in July fell to its lowest level in nearly 15 months, exacerbating investor concerns that demand is on the backfoot and will be dealt a further blow by travel restrictions brought on by rising Covid-19 cases.  

“[T]he decline in crude oil processing in China in July was for different reasons – however, it is feared that processing could fall even further in August because of the Delta variant, Commerzbank (DE:) said in a note.

The demand hit, however, is believed to be transient and is unlikely to keep a lid on prices for too long amid a supply deficit.

“Our base-case remains that this will remain a transient demand hit, with structural supply underinvestment increasingly clear,” Goldman Sachs (NYSE:) said in a note, forecasting that the oil market deficit will persist through year-end. “[W]e estimate that the global oil market remains in a c. 1.5 million barrel per day deficit currently with global oil demand so far only down 1 mb/d from its summer peak reached mid-July.”

Investors will look to weekly U.S. supply data to for further clues on supply-demand imbalance, with the U.S. expected to report a drawdown in weekly inventories.

U.S. petroleum inventory data from the American Petroleum Institute, an industry group, is due later in the session at 4:30 p.m., while official data from EIA is set to be released Wednesday 10:30 a.m.

The EIA is expected to report U.S. crude stockpiles fell just 1.1 million barrels last week, compared with a 0.5 million barrel decline in the prior week.

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