Oil prices, down for the seventh consecutive session on Friday, are poised for their longest losing streak since 2019.
The spread of the Delta variant and recent strength in the value of the dollar are weighing on the commodity. Stocks in the industry, which led the market higher in the first half of the year, have been slumping. Exxon Mobil (ticker: XOM), for instance, is down 6% this week, and has given up all of the gains it has made since February.
Brent crude futures, the international benchmark, were down 0.7% on Friday, to $66 a barrel. In the past seven trading days, Brent has fallen more than 7%. West Texas Intermediate crude futures, the US. benchmark, fell 0.7%, to $63.26 a barrel.
The decline comes even as some fundamental oil market statistics look bullish. While the Covid-19 lockdowns caused oil to build up in storage tanks, producers cut back on production and have been slow to bring it back. In developed nations, oil inventories are now at their lowest level in more than five years.
But the spread of the Delta variant has caused some countries to impose new restrictions on movement, and some employers to delay the return of workers to offices. Apple (AAPL) and Charles Schwab (SCHW) are among the companies that have pushed off the return date. With fewer workers commuting and air travel still subdued, it is unlikely that oil demand will return to 2019 levels this year. And the Federal Reserve’s discussion of tapering asset purchases has helped strengthen the dollar, which tends to move inversely from oil prices.
“With spot Brent prices reacting negatively to news on Delta and global crude oil inventories already at a low point, the oil market has entered into a new phase,” wrote Bank of America strategist Francisco Blanch. “In our view, we still are set for a period of range-bound oil prices for the next six months, but we now see a flatter Brent crude oil term structure into the winter, dragged down by distillates.” (Distillates include several petroleum products, including diesel and heating oil.)
OPEC and its allies have repeatedly stepped in when oil prices have fallen over the past year and a half. But OPEC isn’t going to save the day this month, notes Third Bridge Group analyst Peter McNally. The cartel last met in July, and agreed to gradually add supply back into the market.
“The July OPEC meeting left the market with two things it had not seen in some time: more OPEC oil and no follow up meeting until early September,” McNally wrote on Thursday. “2021 began with Saudi Arabia unilaterally cutting one million barrels per day of oil production at a time when another wave of Covid slowing the global economic recovery. This kick-started a rally in oil that continued through midyear.”
Blanch expects Brent to average $68 in the fourth quarter of 2021, absent more cuts from OPEC and its allies. But he is still bullish on oil for 2022, and expects Brent to reach $83 in the third quarter.
Others also see reason for optimism in the months ahead. J.P. Morgan analyst Jeremy Tonet considers “Delta choppiness a buying opportunity” for the midstream companies he covers. Tonet expects oil companies to start ramping up production at the end of this year to get ready for 2022, and start sending more oil and gas through pipelines and overseas. His top picks include Cheniere Energy (LNG) and Targa Resources (TRGP).
Write to Avi Salzman at [email protected]
