🔒 Delta in China knocks oil price – With insights from The Wall Street Journal

On a broader scale, the highly infectious Delta variant of Covid-19 is expanding in relevance for investors. The oil price fell sharply yesterday after the variant emerged in China. Although 40% of the Chinese population have been vaccinated, the country has only used locally manufactured vaccines which are proving to be poor shields against the Delta variant. As a result, Beijing is now applying heavy lockdowns and mass testing in affected areas. Concerns at Delta spreading throughout China knocked the oil price back 4% yesterday. The latest is in the republished story below. – Alec Hogg

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Oil Prices Slide on Worries That Delta Variant Will Crunch Demand

Crude prices neared their lowest levels since May as investors worry that travel restrictions and delayed office reopenings will limit fuel consumption

Updated Aug. 9, 2021 3:04 pm ET

A slide in oil accelerated on Monday as prices fell to around their lowest level in 2½ months, with traders worried that new restrictions to slow the spread of the Delta variant of the coronavirus could weaken the global economy and crunch fuel demand.

U.S. crude fell by as much as 4.6% and ended the day down 2.6% at $66.48 a barrel, near its lowest price since late May and 12% below a recent multiyear high. While prices are still well above the $50 level where they started the year, their monthslong climb has morphed into a reversal as Delta variant cases soar and governments respond.

Investors are particularly concerned about tumbling demand in China, where Beijing health authorities said last week that the city would cancel all large-scale exhibitions and events for the remainder of August. Similar measures in the world’s largest commodity consumer stand to stall a recent rebound in travel, worrying traders because China’s economic recovery had already shown signs of petering out in recent months.

Traders are also weighing a wave of delays in return-to-office plans for U.S.-based companies from Amazon.com Inc. to Wells Fargo & Co., fueling fear that the stay-at-home trends that have driven months of price volatility could once again take hold.

“The anxiety continues to grow over demand destruction,” said Donald Morton, a senior vice president at Herbert J. Sims & Co. who oversees an energy trading desk. “We’re seeing a lot of liquidation.”

While oil demand and supply are more balanced than they were for much of 2020, analysts say concerns about additional travel restrictions and negative momentum are driving prices lower.

“People have good memories from last time around,” Mr. Morton said.

Brent crude, the global gauge of oil prices, slid 2.3% to $69.04 a barrel.

Shares of energy companies like ConocoPhillips and Valero Energy Corp. were among the stock market’s worst performers on Monday, bringing their drops in the past month to roughly 7.5% or more. Further declines in oil prices could add new pressure to many companies in the sector that have reported rebounding profits in recent weeks.

In another worrisome sign for traders who use commodities to gauge momentum in the world economy, most actively traded copper futures retreated 1.3% to $4.29 a pound and remain well below their May record. Demand worries and steps by the Chinese government to stall a recent run-up have hurt prices of the industrial metal, which is used to manufacture everything from cars to houses.

Other materials from nickel to aluminum also fell on Monday, with economists at Goldman Sachs Group Inc. and Morgan Stanley among those recently downgrading their expectations for Chinese economic growth in 2021.

“While some countries seem to be flipping to learning to live with the coronavirus, [China] is adopting a zero-tolerance policy” with stricter travel rules and quarantine measures, said Norbert Rücker, head of economics at Swiss private bank Julius Baer.

A stronger dollar has also weighed on commodities recently by making them more expensive for overseas buyers.

If recent declines persist, they could ease inflationary pressure on businesses and consumers who are grappling with some of the highest prices in years. They could also help quell fears the Federal Reserve and other central banks could be forced to quickly raise interest rates in response to the surge in consumer prices.

Still, it typically takes a long time for moves in commodity futures to feed through to consumers. The average price for a gallon of regular gasoline in the U.S. broke above $3 a gallon for the first time in more than six years in May and has remained elevated, according to AAA.

One sign that the oil market is weakening: traders are paying a smaller premium for oil to be delivered now or in coming months. The difference between the price of futures contracts expiring shortly and those that run out farther in the future has narrowed in recent weeks.

Concerns about softer fuel demand come at the same time that the Organization of the Petroleum Exporting Countries and its allies press ahead with plans to raise oil production in response to this year’s economic recovery.

While analysts expect demand to outstrip supply even with those extra barrels, OPEC has often reacted to sharp drops in oil prices since the beginning of the pandemic and may do so again to put a floor under prices should Monday’s losses accelerate, said Ole Hansen, head of commodity strategy at London-based Saxo Bank.

Appeared in the August 10, 2021, print edition as ‘Oil Nears a 2½-Month Low On Worry About Virus Surge.’