Oil prices are down in the New York trading session, hitting lows not seen since May as a result of the U.S Federal Reserve (Fed) minutes which gave rise to a bullish U.S. dollar and concerns about weaker demand as COVID-19 cases rise.
What you should know
The oil market has been on an uptrend throughout the first half of 2021, but the newest wave of coronavirus infections throughout the world has weakened demand for global travel and threatens economic activity. That comes just as major oil producers like the members of the Organization of Petroleum Exporting Countries and their alias (OPEC+), are readying supply increases and as U.S. drilling activity edges up.
Brent crude oil, the global benchmark for oil is down 3.11%, currently trading $66.11 a barrel, after touching $65.57, lowest since May 21. The U.S benchmark, the West Intermediate (WTI) is down by 3.19%, currently trading $63.13 a barrel after trading as low as $62.41 a barrel, lowest since May 21. Both benchmarks have declined for six days in a row, the longest losing streak since February 2020.
The U.S. dollar hit a nine-month high today after Federal Reserve meeting minutes showed policymakers are considering reducing pandemic-era stimulus this year. A rising U.S. dollar makes the price of oil more expensive for holders of other currencies.
The World Health Organization (WHO) stated that the Delta variant in areas of low vaccination is driving transmission of COVID-19 as coronavirus-related deaths have spiked in the United States over the past month.
According to federal data, U.S. gasoline inventories rose unexpectedly last week, adding to concern about the demand for oil. U.S. gasoline consumption tends to peak in the summer months and retreats the months after that. Also, the International Energy Agency (IEA) last week trimmed its oil demand outlook due to the spread of the Delta variant. OPEC, however, left its demand forecasts unchanged.
What they are saying
Phil Flynn, an analyst at Price Futures Group stated, “There seems to be a lot of people getting squeezed out of long positions.” According to Flynn, volumes on Thursday were relatively light, considering the magnitude of the sell-off. Brent volumes were just under 250,000 contracts, while volumes for the most-active WTI contract were around 310,000.
Andrew Lipow, president of Lipow Oil Associates in Houston stated, “There’s concern that the Fed will begin tapering, resulting in a stronger dollar and weaker crude prices”.
Oil prices may continue to see a decline in the coming weeks until there is positive signs of reduced cases of COVID-19 in top oil-importing countries like the U.S, China and India.