(Bloomberg) -- Oil advanced from a three-week low as investors bet that the global demand recovery will remain intact despite the fast-spreading delta virus variant leading to tighter restrictions in many regions.
Futures in New York rose above $67 a barrel after tumbling almost 4% over the past two sessions. Delta has led to rising infections and curbs on movement, most notably in China where crude refining is set to be scaled back and air travel has slumped. However, expectations are that global demand will accelerate and tighten the market through the end of the year.
Delta has raised concerns about the short-term demand outlook and interrupted a rally in oil that saw prices advance more than 50% over the first half of the year. The resurgence is crimping fuel consumption just as the OPEC+ alliance returns more supply to the market that it halted during the pandemic.
China Petroleum & Chemical Corp., the nation’s biggest refiner that’s commonly known as Sinopec, is cutting run rates at some plants by 5% to 10% compared with previously planned levels this month, according to Jean Zou, an analyst at commodities researcher ICIS-China. The analytics firm tracks operations, maintenance plans and processing margins across the country.
“China’s Covid Zero strategy means restrictions could continue to widen and tighten, denting oil consumption,” said Vandana Hari, the founder of consultant Vanda Insights. “Delta outbreaks are certainly cause for a revaluation of the earlier anticipated trajectory of the global demand recovery.”
The oil market structure has also weakened as Covid-19 cases climb. The prompt timespread for Brent was 47 cents a barrel in backwardation -- where near-dated contracts are more expensive than later-dated ones. That compares with 92 cents at the end of July.
The number of seats being offered by China’s airlines dropped the most since early in the pandemic as the nation implemented fresh restrictions to contain the latest wave, based on data from aviation specialist OAG. Meanwhile in the U.S., virus cases surged to the highest weekly level since early February.
The International Energy Agency and the Organization of Petroleum Exporting Countries are scheduled to release monthly reports on Thursday, which should give an indication of how seriously they see the threat to demand from delta.
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