Oil climbs from three-week low as traders assess demand

(BLOOMBERG) – Oil edged higher from a three-week low as investors assessed the demand outlook amid the latest Covid-19 resurgence sweeping the globe.

Futures in New York climbed towards US$67 a barrel after tumbling almost 4 per cent over the past two sessions. The fast-spreading Delta variant of the virus has led to rising infections and renewed restrictions in some regions, including in China where domestic air travel has slumped. Despite the flare-up, expectations are that demand will accelerate and tighten the market through the year-end.

The Delta variant has raised concerns about the short-term demand outlook and interrupted a rally in oil that saw prices advance more than 50 per cent 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.

The oil market structure has weakened as Covid-19 cases climb. The prompt time spread for Brent was 44 US cents a barrel in backwardation – where near-dated contracts are more expensive than later-dated ones. That compares with 92 US cents at the end of last month.

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 US, virus cases surged to the highest weekly level since early February.