Oil tumbles on renewed COVID-19 spread, concerns over fuel demand

Oil plunged to an 11-week low, extending losses after the worst week since October, as new waves of COVID-19 threatened fuel demand.

Futures fell below $66 a barrel in New York, while wilting timespreads showed the market is faltering. Goldman Sachs Group Inc. downgraded its economic growth forecast for China as the country imposed measures to contain coronavirus flare-ups, including a mass testing program in Wuhan — the original epicenter of the pandemic. Infections have also climbed in the U.S. and Thailand.

“Oil is seeing a continued loss of momentum, with sentiment taking a knock,” said Ole Hansen, head of commodities research at Saxo Bank A/S. “Most importantly, worries about the short-term demand outlook as governments respond to a surging Delta variant” are weighing on the market.

Crude has run into stiff headwinds this month as the Delta variant sweeps across the globe, leading to renewed restrictions. In China, airline seat capacity has dropped 32% in a week, the most since early in the pandemic, while air-travel comebacks have stagnated in Europe and North America.

Oil has also felt the effect of a strengthening dollar amid expectations that the Federal Reserve will ease stimulus. Crude’s plunge Monday coincided with a broader commodities selloff, with gold earlier touching the lowest since March and copper slipping to a two-week low.

Still, further price losses may be contained as the OPEC+ alliance led by Saudi Arabia continues to stabilize supply levels, avoiding a new surplus. The group is gradually restoring production it halted when the coronavirus first emerged last year.

“Despite the Delta spread, the market is undersupplied on our estimates, so we believe further downside risk is limited in the short term,” said Helge Andre Martinsen, senior oil-market analyst at DNB Bank ASA.