Financial markets are still being slow to recognise the dangers of the upsurge in Covid Delta cases globally and especially in major economies like Japan and the US. Not so oil, where prices ended their biggest week of losses in more than nine months with another fall on Friday.
Unlike market commentary for equities, the market analysts all blamed the second big weekly fall in a row on growing fears weakened fuel demand globally because the continuing advances of Covid delta infections.
Global crude markets have now posted seven consecutive days of losses. Numerous countries are responding to the rising Delta variant infections by adding travel restrictions to cut off the spread.
In Australia, NSW and parts of Victoria and the ACT are locked down with curfews and other barriers to free movement.
China has imposed a stricter disinfection regime at ports, causing congestion; countries including New Zealand have tightened travel restrictions and globally, while jet fuel demand is softening after growing for most of the northern summer.
At the same time US shale oil companies continue to build up their rig numbers – they rose 8 (for oil directed rigs) in the week to last Friday after a rise of 9 the week before, according to Baker Hughes.
The US drilling rig count increased by 3 units to reach 503 rigs, that was up 249 units from the 254 rigs working this time a year ago. US oil-directed rigs were up 8 from last week at 405 units.
This time a year ago, 183 units were drilling for oil. Rigs targeting gas fell by 5 to 97, 28 more than were drilling for gas at this time a year ago.
In fact the past two weeks has seen US oil drillers have added more rigs than they have since April.
US production in the week to August 13 was estimated at 11.4 million barrels a day by the US Energy information Agency. That’s around 700,000 barrels a day more than in August 2020.
There are growing fears this will see the surge in US supplies is happening just as demand has peaked and is being crimped by Delta infections.
As a result, Brent crude fell 8% last week, settling down $US1.27, or 1.9%, to $US65.18 a barrel, its lowest since April and down about 8% for the week. US West Texas Intermediate (WTI) crude for September settled down $US1.37, or 2.2%, to $US62.32 a barrel on Friday, to lose more than 9% for the week.
That took the fall in the past fortnight to more than 15% as the market has turned down.
China, the world’s largest crude importer, has imposed new restrictions with its “zero tolerance” coronavirus policy, which is affecting shipping and global supply chains. The United States and China have also imposed flight-capacity restrictions.
Several big US companies have delayed their return-to-office plans. Apple – the largest American company by market value – is delaying the return of its workers until early 2022. Others are demanding vaccination or proof of testing, especially in entertainment and retailing Walmart and Disney).
The US dollar hit a nine-month high on signs the Federal Reserve is considering reducing stimulus this year.
The market expects the Jackson Hole meeting this week to see more clarity on fed policy when chair Jay Powell speaks Friday night, Sydney time on monetary policy.
His comments will move markets, especially the greenback. The Aussie currency ended well under 72 US cents on Friday at 71.33 cents, down 2.4 US cents over the week.
Futures contracts suggest that the market expects plenty of supply in coming months. The premium for the front month Brent contract over the third-month contract has nearly halved between late July and now, indicating that near-term supply will not be as tight as the market had expected.
“The oil market has quickly noticed that the Delta variant is a growing problem and a potential hurdle to a mobility/fuel demand recovery,” Francisco Blanch, Bank of America commodity & derivative strategist, said in a note, quoted by Reuters.
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Gold prices edged higher on Friday even as the US dollar rose to the highest this year on expectations the Federal Reserve will soon begin slowing bond purchases.
The focus on the Fed will continue this week with the eagerly-awaited speech from Chairman Jay Powell this Friday at the Jackson Hole seminar in Wyoming, where central bankers from around the world will be talking and meeting virtually.
Comex gold for December delivery closed up 90 cents to $US1,784.00 per ounce on Friday afternoon. That left it up 0.06% after the big sell down on Wednesday and Thursday.
Gold has remained under the $US1,800 mark since the first week of the month on expectations the Federal Reserve will soon take a more hawkish stance as the worst of the pandemic’s hit to the economy fades,
“The gold market is under pressure amid fears of tighter monetary policy and renewed strength in the USD,” ANZ Bank analysts said in a note.
Comex copper rose more than 2% to $US4.13 a pound and then rose in after-hours trading to $US4.15 a pound.
Copper though still fell 4.9% for the week off the back of the weaker Chinese economic data earlier in the week and worries about Covid and the Fed’s tapering moves.
Iron ore prices steadied on Friday – the price of 62% Fe fines rose $US7.78 to $US140.44, the price of 58% Fe fines was up 5% or $5.38 to $US108.80 and the price of 65% Fe fines from Brazil was up $US6 a tonne to $US158.50.
