The black liquid ended the week posting its worst weekly loss in nine months due to persistent increase in the dollar on Friday as a result of the Non-Farm Payroll (NFP) report. This stopped any attempt by crude prices to rebound on Mideast tensions after a week of negative news on Covid.
What you should know
- The global benchmark for oil, the brent oil futures declined by 0.83% on Friday to close the week at $70.70 per barrel, barely holding on to the $70 trading zone. For the week, the Brent lost almost 8%, its biggest weekly decline in nine months.
- The U.S oil benchmark, the New York-traded U.S. West Texas Intermediate (WTI) crude, closed Friday bearish by 1.17%, to currently stand at $68.28 per barrel for the week. Also, for the week, the U.S oil lost 7.67%, its most since the 10% drop during the week to Oct. 23, 2020.
- Oil and other commodities tumbled in the face of a rising dollar which is due to a resilient U.S. NFP report which revealed the U.S jobs report for July. The report raised questions about the continuance of the stimulus provided by the Federal Reserve to markets and the economy. Since the COVID outbreak of March 2020, the Fed has been buying Treasuries and other assets to the monthly tune of $120 billion to support the U.S. recovery from the pandemic.
- Crude prices were already down for the first three days of the week and were on track to close the week bearish by around 6% due to the global surge in coronavirus cases from the Delta variant that cast doubt over the outlook for oil demand especially now that the Organization of Petroleum Exporting Countries and its allies (OPEC+) have increased their oil production output.
- In the United States, the world’s biggest oil consumer, Covid cases hit a six-month high with more than 100,000 infections reported earlier this week, according to a Reuters tally.
Ed Moya, who heads research for OANDA, an American based broker, stated that “A stronger dollar will likely prove to be a big drag over crude prices in the short-term.”
Crude prices on Thursday appreciated a little on the back of Mideast tensions as Israeli jets struck purported rocket launch sites in Lebanon in response to an earlier attack, allegedly by Tehran. That was before the dollar’s rebound on Friday, which put paid to any further rebound in oil.
The demand outlook for the black liquid is uncertain especially now that major cities around the world are going on another round of restrictions and lockdowns. News from Japan suggests the country is increasing its emergency restrictions to more areas while China, the world’s second-largest oil consumer, has imposed restrictions in some cities and cancelled flights. These actions threaten fuel demand.
In the United States, the world’s largest oil consumer, the daily new COVID-19 cases have climbed to a six-month high. Investors are advised to remain cautious as the oil market remains very volatile at the moment.