Oil fell for the sixth day in a row to its lowest level since May after the US Federal Reserve announced on Wednesday it would begin phasing out asset purchases within months. West Texas Intermediate futures closed the session at 2.7 percent, plunging below $64 a barrel amid broader commodity sell-offs as the prospect of reduced stimulus shaken markets. The delta virus variant for air travel is denting demand, and enthusiasm for air travel is waning in both the US and Japan. Asia’s physical market is weakening due to moderate purchases from China and a move by India to sell oil from its strategic reserves.
“The dollar is strengthening significantly as the Fed tries to cool the economy,” said John Kilduff, partner at Again Capital LLC. “Oil was already under downward pressure as the market faltered from reduced demand from China, and the declining attractiveness of commodities is further encouraging the slump.”
The oil rally in the first half of the year has lost momentum since July due to the threat to demand from the spread of the delta variant. At the same time, OPEC+ continued to gradually recover stocks. The combination of factors has led leading analysts to lower price forecasts for the last half of the year.
To cushion the U.S. economy from the blow the pandemic has inflicted, the Fed has been buying up $120 billion in assets each month, boosting commodities. The minutes of the bank’s July meeting pointed to a possible slowdown in monthly bond purchases, as most participants now believed it might be appropriate to slow the pace of stimulus.
“Concerns about economic growth, a stronger dollar and a risky environment are not helping oil,” said Giovanni Staunovo, analyst at UBS Group AG. “Demand will continue to recover unevenly in the coming weeks and the oil market remains undersupplied. So that should support prices going forward.”
- The WTI for September delivery fell $1.77 to settle at $63.69 a barrel in New York. It had previously fallen 4.3 percent.
- Brent before the October settlement fell $1.78 to end the session at $66.45 a barrel.
Road traffic continues to be under pressure in several Southeast Asian countries as varying levels of closures remain in place. “Consumption indicators coming out of the region have global influence,” said Stewart Glickman, energy stock analyst at CFRA Research. “Where China goes, investors follow.”
- The physical Asian crude oil market weakened this week as a muted buying from China coincided with a surprise move by India to sell oil from its strategic reserves to state-run refineries.
- Barely a week after the White House called on OPEC+ to accelerate oil production, the group may be considering a completely different route.
- According to Energy Aspects, Saudi Arabia is likely to consider a pause in the next planned OPEC+ supply increase.
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