(Bloomberg) — Oil slumped alongside a broader market rout as a resurgent virus in some of the world’s top oil importers highlighted the uneven road to recovery.
West Texas Intermediate fell as much as 3% with U.S. equities on track for their first back-to-back decline since late March. While the oil futures curve suggests growing confidence in a demand recovery, the virus is rampant in countries such as India. Annual crude imports in the Asian country fell for the first fiscal year since the late 1990s as refiners cut run-rates amid lower demand.
“Oil is dropping along with the broader risk market decline,” said Bart Melek, head of commodity strategy at TD Securities. At the same time, “variants are wreaking havoc on some economies, and it’s uncertain how the whole demand picture will evolve.”
Still, the market is a far cry from where it was a year ago today, when an unprecedented crisis saw U.S. benchmark crude futures closing at negative $37.63 a barrel. The historic plunge came as lockdowns savaged demand and key producers Saudi Arabia and Russia flooded the market in a price war. A restoration of OPEC+ unity marked by deep supply cuts, as well as vaccine distribution around the world, have helped prices to climb back.
Despite the near-term headwinds surrounding surging caseloads in top oil-consuming regions, there are also points of optimism for an upcoming surge in global oil consumption. Driving is soaring in the U.K. as more than 60% of its population over 18 has received a first vaccine dose. Vitol Group, the world’s biggest independent oil trader, expects demand to come roaring back, echoing optimistic views from OPEC and the International Energy Agency.
Along with concerns around the lagging demand recovery in some regions, signs of progress being made in talks on the revival of a 2015 nuclear deal raises the prospect of additional Iranian supply further out. A return to the deal could include lifting U.S. sanctions on the Persian Gulf country’s oil exports.
Meanwhile, U.S. oil stockpiles are expected to have fallen last week, which would extend the streak of drawdowns to four weeks, according to a Bloomberg survey. The American Petroleum Institute will report its figures later Tuesday ahead of U.S. government data.
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