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NYMEX WTI contract enters correction territory as delta surge threatens outlooks

Crude oil prices fell for the seventh straight session Aug. 20 on the back of a stronger dollar and concerns that the delta variant surge could blunt demand outlooks.

NYMEX September WTI settled $1.37 lower at $62.32/b and ICE October Brent gave up $1.27 to settle at $65.18/b.
It was the seventh consecutive lower session for both Brent and WTI, leaving the contracts at the lowest level since May 20.

“Energy prices are melting as delta-variant fears continue to fuel concerns ahead of OPEC+’s next monthly output hike,” TD Securities analysts said in a note. “Our gauge of energy supply risks has registered a meaningful decline, pointing to easing concerns of deep deficits on the horizon, with the delta-variant impacting demand expectations.”

NYMEX WTI structure weakens amid COVID resurgence

OPEC+ is slated to produce an additional 400,000 b/d in September, but US President Joe Biden has called on the group to increase oil supply further to ease crude prices and offset the domestic pressure of high gasoline costs.

NYMEX WTI last saw seven consecutive down sessions in September 2019, and this is the longest down streak for ICE Brent since February 2018.

The slide has pushed NYMEX WTI down 10% from its most recent high seen Aug. 9, pushing it into correction territory for the first time since late October 2020, when the front-month contract slid nearly 14% between Oct. 20 and Oct. 30. ICE Brent has so far outperformed WTI, with the front-month contract settling Aug. 20 just 8.7% below its most recent peak.

NYMEX September RBOB settled down 5.79 cents at $2.0236/gal and September ULSD declined 6.08 cents to $1.9082/gal.

The outsized weakness in US crude prices was likely due to market jitters that a recent resurgence in COVID-19 cases could herald a return to pandemic restrictions.

The US reported 157,694 new COVID-19 cases Aug. 18, latest data from the Centers of Disease Control and Prevention showed, and the seven-day moving average stood at 133,055 cases — levels last seen in February.

The rise in cases correlated with a deterioration of NYMEX crude’s forward structure. The year-ahead WTI contract settled at a $3.59/b premium to front-month Aug. 20, in sharply from as much as $8/b in early July.

“Delta variant cases continue to wreak havoc over the short-term crude demand outlook,” OANDA senior market analyst Edward Moya said in a note. “Crude prices will struggle to catch a bid as the peak of summer driving is behind us and now the return to the office might be in jeopardy for many companies.”

Nationwide US gasoline inventories unexpectedly climbed in the week ended Aug. 13, US Energy Information Administration data showed Aug. 18, suggesting a U-turn in demand even though three weeks of the seasonal US driving season remained.

Rising inventories and slowing demand have weighed on gasoline cracks. The ICE New York Harbor RBOB crack versus Brent fell to $14.10 in afternoon trading, on pace for the weakest close since Feb. 12.

Oil prices face additional headwinds beyond the delta surge’s near-term impacts.

The US Federal Reserve has signaled it could start tapering bond purchases as early as September, which could spur higher interest rates and add to pressure on energy demand in coming months.

The more hawkish stance signaled by the Fed has been bullish for the dollar in recent days, adding pressure on energy prices. The ICE US Dollar Index was holding at 93.494 at the close of oil trading, down slightly from the nine-month high of 93.568 seen Aug. 19.
Source: Platts

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