What’s happening: Crude oil fell sharply to a three-week low level on Monday.
What happened: Oil prices extended last week's slide on a strong US dollar and concerns around the spread of the Delta variant of covid-19 around the world.
Market sentiment was hurt by the government of the world’s biggest crude importer announcing additional restrictions to control the further spread of the virus and major Wall Street banks lowering their growth forecast for the country.
Why it matters: Both standards of crude oil had tumbled more than 7% last week to record their worst week since October, following concerns of lower demand and an unexpected rise in US crude stockpiles. The EIA (Energy Information Administration) had reported last week a rise of 3.6 million barrels in US stockpiles, versus market expectations of a 2.9 million barrel decline.
China, the largest importer of crude in the world, has started imposing additional restrictions in the country in a bid to contain the spread of the virus. Beijing’s health authorities recently announced the cancellation of all major events in August, while the government also reimposed travel restrictions.
Wall Street banks, including, JPMorgan, Goldman Sachs and Morgan Stanley, reduced their growth projections for China, with the resurgence of covid-19 and a surprise slowdown in the country’s exports.
Goldman Sachs sharply lowered its sequential growth projections for the third quarter of the year from 5.8% to 2.3%. Morgan Stanley cut its quarterly estimate to 1.6%, while JPMorgan lowered its forecast to 2.0%.
“The biggest challenge for oil markets remains the uncertainty around COVID as the ‘delta variant’ has made for the highest daily case counts since early 2021,” Bank of America analysts said in a note.
Although exports from China grew 19.3% year-over-year in July, this marked a significant slowdown from the 32.2% surge in the previous month and missed market expectations of 20.8% growth. China’s imports grew 28.1% year-over-year, versus 32.2% growth in June. The country’s crude oil imports fell sharply in July, from the record levels of the year-ago month.
Oil prices also remained under pressure with a rise in the US dollar. The US Dollar Index, which tracks the greenback versus a basket of major currencies, surged to around a three-week high level driven by upbeat NFP (nonfarm payrolls) data released on Friday.
WTI crude for September delivery fell 2.6% to close at $66.48 per barrel on the NYMEX on Monday. October Brent crude declined by 2.4% to end at $69.04 per barrel on ICE Futures Europe.
Prices for both oil benchmarks settled at the weakest level since July 19. US crude oil prices also tumbled to their lowest level since May earlier during the session.
In other energy commodities, September gasoline declined by 1% to settle at $2.2348 a gallon, while September natural gas shed 1.9% to reach $4.06 per million British thermal units on Monday.
What to watch: Traders will continue to monitor the spread of the Delta variant as rising infections impact the demand for fuel.
The API’s (American Petroleum Institute) weekly data on crude inventories will remain in focus today. US crude oil inventories had declined by 0.879 million barrels in the week ending July 30, after falling by 4.728 million in the previous week.
The OPEC and IEA are scheduled to release their reports on Thursday.