Oil Dips After Three-Day Rally With Covid Still Clouding Outlook

(Bloomberg) -- Oil dropped after the biggest three-day gain since March, with the latest Covid-19 resurgence still clouding the outlook for fuel demand.

Futures in New York fell below $68 a barrel after rising almost 10% over the past three sessions. Shrinking U.S. stockpiles, a rebound in Indian demand and China’s containment of its latest outbreak are providing some positive signs for the market, but restrictions on mobility still remain in place in many regions due to the fast-spreading delta variant of the coronavirus.

Oil has been volatile this month, clawing back some losses this week after the worst streak of declines since October 2019. The European Union will discuss on Thursday whether to reimpose curbs on U.S. visitors as cases spike, while the market will be looking for any changes to production policy from the OPEC+ alliance when the group gathers on Sept. 1.

“The persistent spread of the delta variant is weighing on transport fuel demand, particularly in Asia-Pacific markets where vaccination rates are low,” said Victor Shum, vice president of energy consulting for IHS Markit in Singapore. “The oil price rally this week cannot be sustained.”

Investors will also be keenly watching the Jackson Hole meeting from Thursday for insights on how the Federal Reserve will ease stimulus. The dollar edged higher, making raw materials such as oil more expensive for investors.

The prompt timespread for Brent has firmed in a bullish backwardation structure -- where near-dated contracts are more expensive than later-dated ones -- following some weakness due to the virus resurgence. The spread was $1.01 a barrel, compared with 38 cents on Monday.

U.S. crude stockpiles fell by 2.98 million barrels last week, according to Energy Information Administration data. Gasoline inventories slid by 2.24 million barrels, compared with the median estimate in a Bloomberg survey for a 1.5-million barrel decline. Cushing supplies rose marginally.

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