Oil futures traded slightly higher Thursday morning, attempting a bounce after a sharp, three-day losing streak tied in part to worries that the spread of the delta variant of the coronavirus that causes COVID-19 may impact energy demand.
West Texas Intermediate crude for September delivery
the global benchmark, was up 16 cents, or 0.2%, at $70.54 a barrel on ICE Futures Europe. WTI is nursing a week-to-date loss of around 7.6%, while Brent is off 6.5%.
“A surge in coronavirus cases caused by the delta variant is forcing several countries around the world to impose new lockdowns, a scenario that is likely to negatively impact fuel demand,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note.
Crude slumped on Wednesday after an unexpected uptick in U.S. crude stockpiles, although gasoline inventories showed a much larger-than-expected drop. A stronger dollar also weighed on crude. The dollar backed off Thursday, with the ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, off 0.1%.
The build in U.S. crude stocks was largely attributed to a fall in exports.
Exports were likely hit by the narrowing of Brent’s premium to WTI, which hit $1.16 on June 30, said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note.
“There is very little reason for refiners outside of the America’s to buy U.S. barrels when Brent is only trading at a $1.16 premium to WTI,” he said. “When the arb is that tight, a refiner in the Amsterdam/Rotterdam/Antwerp refining hub will lose money by chartering a tanker and sailing it all the way to the U.S. Gulf Coast and back…they basically get beat on storage and transportation…cost of carry.”
There’s a lag of a few weeks between bookings and sailings, he noted, which explains the lag between the -$1.16 high in the spread and the reporting period to the week of July 30.
The export situation should reverse and rally back to the 2 million to 3 million barrel range in coming weeks as the Brent/WTI has rallied back to levels as wide as -$2.95 on July 27, Yawger said.
Natural-gas futures pulled back Thursday, with the September contract
down 0.6% at $4.133 per million British thermal units. It remains up 5.6% for the week, boosted by hot weather and strong global demand.