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Oil drops after strong rally as new COVID variants weigh

Brent crude fell 28 cents, or 0.5%, to $61.19 a barrel by 0947 GMT and U.S. West Texas Intermediate crude slid 25 cents, or 0.4%, to $58.43.

The Brent benchmark had risen in the previous nine sessions, its longest sustained period of gains since January 2019. Wednesday had marked the eighth daily gain for U.S. crude.

“Demand recovery is hindered by mutant viruses and stuttering rollouts of inoculations,” said PVM Oil analyst Tamas Varga.

The International Energy Agency (IEA) on Thursday said that global oil supply is still outstripping demand because of COVID-19 lockdowns and the spread of virus variants.

“The forecasts for economic and oil demand growth are highly dependent on progress in distributing and administering vaccines, and the easing of travel restrictions in the world’s major economies,” the IEA said.

The market has been driven higher recently as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, reduced output and Saudi Arabia pledged additional voluntary cuts.

But the IEA said that a rapid stock draw expected in the second half of the year could set the stage for OPEC+ to start unwinding its cuts.

Further price pressure came from the end of a blockade by Libya’s Petroleum Facilities Guards at the port of Hariga. The stoppage at Hariga began last month and contributed to a decline in Libyan oil output.

However, U.S. crude stockpiles fell last week for a third straight week, dropping by 6.6 million barrels to 469 million barrels, the lowest level since March, the Energy Information Administration said. Analysts in a Reuters poll had forecast an increase of 985,000 barrels.

Yet the continuous struggle caused by the emerging variants of the virus and doubts about the efficacy of vaccines continues to dampen sentiment.

A UK scientist said the coronavirus variant found in the British county of Kent is likely “to sweep the world” and could undermine the protection given by vaccines.
Source: Reuters (Reporting by Bozorgmehr Sharafedin in London; Additional reporting by Naveen Thukral in Singapore; Editing by David Goodman)

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