Crude oil futures edge lower as pandemic concerns continue to weigh

0300 GMT: Crude oil futures were lower during mid-morning trade in Asia July 26 as concerns over the spread of the delta variant of the coronavirus continued to weigh on the market's upward potential.

At 11 am Singapore time (0300 GMT), the ICE September Brent futures contract was down 35 cents/b (0.47%) from the previous close at $73.75/b, while the NYMEX September light sweet crude contract was down 36 cents/b (0.50%) at $71.71/b.

Both benchmarks experienced significant volatility in the week ended July 23, recovering from a plunge on July 19 to end the week marginally higher. The front-month ICE Brent marker rose 0.69% on the week to settle at $74.10/b July 23, while front-month NYMEX light sweet crude rose 0.71% to $72.07/b.

"Last Monday's panic over the delta variant and its impact on oil demand recovery had ended by the middle of last week. But fear over the variant continues to hang in the air, and may prevent crude from notching any further substantial gains," Vandana Hari, CEO of Vanda Insights, told S&P Global Platts July 26.

However analysts said that oil market fundamentals remained strong, with improving downstream oil demand in the US and Europe boosting sentiment.

Implied oil product demand in the US rose 6.62% on the week to 20.6 million b/d in the week ended July 16, the latest Energy Information Administration report showed July 21.

"Gasoline demand in several major regions has returned to pre-pandemic levels amid rising road traffic data; even the jet fuel market is showing signs of improvement," ANZ analysts said in a July 26 note.

The ANZ analysts also expressed optimism that rising vaccination rates have reduced the likelihood that countries may retreat into full-blown lockdowns. "With officials from well-vaccinated countries reluctant to reinstate harsh lockdown measures, the risk of demand growth faltering is diminishing," they said.

The uptrend in oil demand has raised concerns of a supply deficit in the market, as the supply-side response from US shale producers remains conservative. These concerns come despite the OPEC+ coalition deciding on July 18 to increase its production quotas by 400,000 b/d each month from August.