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Crude slide extends as market eyes US inventory data, delta variant

Highlights

API sees US crude stocks down 4.73 million barrels

Delta variant spread adds downside risk

US CDC reverses indoor mask policy

Crude oil futures settled lower July 27 as traders looked to upcoming US inventory and economic data for signs of next direction against a backdrop of rising coronavirus cases around the world.

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NYMEX September WTI settled down 26 cents at $71.65/b while ICE September Brent gave up 2 cents to settle at $74.48/b.

"Oil, like other risk assets, has been in wait-and-see mode, something that will likely change in the coming hours and days," OANDA senior market analyst Craig Erlam said in a note, noting the American Petroleum Institute's US inventory data slated for July 27 and a bevy of US earnings releases expected in the coming days.

NYMEX August RBOB settled 58 points higher at $2.3141/gal while August ULSD declined 71 points to $2.1439/gal.

API data released after market settle showed US crude oil stocks fell 4.73 million barrels during the week ended July 23, analysts said. Analysts surveyed by S&P Global Platts on July 26 had called for a 2.5 million-barrel draw in US crude stocks over the same period.

Barring fresh drivers to the upside, the continued spread of the coronavirus' delta variant has added headwinds to oil prices, analysts said.

"New COVID-19 cases have been rising in Asia for a few weeks now, but sentiment in the oil market is starting to deteriorate as infections rise in the heavy energy-consuming countries of the west," Avtar Sandu, senior commodities manager at Phillips Futures, said July 27.

The US Centers for Disease Control and Prevention on July 27 reversed its previous guidance and recommended that fully vaccinated persons resume wearing masks indoors. Citing the spread of the delta variant both domestically and internationally, US White House press secretary Jen Psaki said July 26 that the country will maintain its existing coronavirus travel restrictions, resisting pressure from the travel industry and US allies to ease them, media reports said.

Still, while localized resurgence of the coronavirus pandemic could slow demand growth, the broader trend of tightening energy supply is likely to continue, analysts said.

"While the delta variant continues to spread in the US, it is unlikely to meaningfully tighten mobility restrictions and derail the recovery in energy demand," TD Securities analysts said in a July 27 note.

"While surging cases in US, Brazil, Indonesia and Europe are threatening to slow the recovery in demand as travel restrictions are tightened, robust road traffic data across most major regions suggests rising infections are having minimal impact," ANZ analysts said.