Oil Slips Following Two-Day Gain With Demand Outlook in Focus

Oil dipped after a two-day gain as investors assessed the demand outlook amid a Covid-19 resurgence in many regions.

Futures in New York fell below $74 a barrel after rising more than 2% on Friday. The rollout of vaccines and rebound in economic activity across major economies, particularly the U.S., has underpinned increasing fuel consumption. The spread of the highly infectious delta variant of the virus and uncertainty over supply from the OPEC+ alliance are clouding the outlook, however.

There are also signs that China's rebound is slowing. It's economy was always expected to descend from the heights hit during its initial rebound, but economists say the softening has come sooner than expected.

Oil's upward momentum was interrupted last week after an OPEC+ meeting on output levels was abandoned. Crude capped its first weekly loss since May -- despite an end-of-week rally -- with the stalemate raising concern the group's unity may fracture and lead to a price war. The alliance had been widely expected to restore more of the production sidelined during the pandemic

"There is some weaker Chinese data but also the rise of the delta variant in Europe is causing some doubts on the demand recovery," said Hans van Cleef, senior energy economist at ABN Amro. There's also the question of whether OPEC+ will find a solution and potentially increase production, he said.

Prices

• West Texas Intermediate for August delivery lost 1.4% to $73.50 a barrel on the New York Mercantile Exchange at 10:12 a.m. in London after climbing 3.3% over the past two sessions.
• Futures lost 0.8% last week.
• Brent for September settlement fell 1.3% to $74.57 on the ICE Futures Europe exchange after adding 1.9% on Friday.

The International Energy Agency will provide investors with a snapshot of the market on Tuesday with the release of its monthly report, while OPEC will also release its monthly report on Thursday.

The market's bullish structure has eased slightly on the OPEC+ uncertainty. The prompt timespread for Brent was 82 cents a barrel in backwardation -- where near-dated contracts are more expensive than later-dated ones. That compares with 99 cents a week earlier.

The coronavirus remains a constant source of concern. The U.S. reported the most cases since mid-May as delta takes hold in less vaccinated areas. French officials warned of a new wave, while U.K. Prime Minister Boris Johnson will warn people to stay vigilant as he prepares to lift virtually all remaining restrictions in England. In Asia, Indonesia is in the throes of a major outbreak and case numbers are also high in Thailand and Malaysia.

Other market news:

• Saudi Aramco offered full contractual crude oil supply to at least six buyers in Asia for August sales, according to refinery officials who were notified by the producer.
• Evidence of U.S. oil explorers holding the line on spending is no more apparent than in the weekly rig count for America's busiest shale patch, the Permian Basin.
• Limetree Bay Energy is preparing for a bankruptcy filing by its oil refinery in the U.S. Virgin Islands after the company indefinitely extended a shutdown of the plant.