Crude slides as delta spread weighs on demand outlooks

Crude oil futures settled lower Aug. 9 as global demand outlooks saw pressure from the continued spread of the COVID-19 delta variant.

NYMEX September WTI settled $1.80 lower at $66.48/b and ICE October Brent declined $1.66 to $69.04/b.

According to preliminary data released Aug. 7 by the General Administration of Customs, Chinese crude oil imports in July fell 0.6% on the month to 9.75 million b/d, and a year-on-year decline of 19.6%.

The decline in crude oil imports was most pronounced among independent Chinese refiners, with S&P Global Platts data showing a 37.6% year-on-year decline in imports during July to 2.93 million b/d, representing around three-quarters of the year-on-year decline in July crude oil imports into China.

NYMEX September RBOB settled down 2.21 cents at $2.2348/gal and September ULSD gave up 4.24 cents to settle at $2.0421/gal.

The bearish imports data exacerbated renewed concerns over rising coronavirus cases in Asia, and how China may respond to this in line with the zero-COVID policy of the government.

"The price slide is continuing today amid growing concerns about demand again," Carsten Fritsch, analyst at Commerzbank, said in a note Aug. 9.

"Rising Chinese delta cases and restrictions has cast doubt over the economy in the short-term, with the world's largest crude importer keen to get to grips early with any outbreak, just as it has done in the past," OANDA senior market analyst Craig Erlam said in a note. "The fact that China is already importing lower numbers of crude, as well as other commodities like iron ore and copper, doesn't help the outlook or prices."

Pandemic lockdowns in East Asia have contributed to stalling in global jet fuel demand recovery is clearly stalling with scheduled airline capacity for the period starting Aug. 9 down 6.5% week on week to 76 million seats, according to aviation data company OAG.

Seat capacity is 71.2% of its January 2020 level, but only 63.9% of the level of the week starting July 22, 2019, OAG data showed.

In Northeast Asia, capacity fell 25% to 15.42 million passengers, while capacity in Southeast Asia fell 25% to 1.79 million passengers.

"International capacity remains at less than half 2019 levels and shows no signs of a significant recovery heading into the autumn whilst major domestic markets such as China and Australia continue to see capacity cuts as they contend with the latest COVID-19 outbreaks," OAG senior analyst John Grant said.

Widespread travel bans across China prompted S&P Global Platts Analytics to reduce its outlook for China's peak season summer jet fuel demand by 9%.

Adding to downward crude pressure was a stronger US dollar. The ICE US Dollar Index climbed to 92.983 in afternoon trading, on pace for the highest close since April 2.