World’s biggest oil market sees over-supply risk amid delta rise
U.S. shale output is rising again just as a resurgence in Covid cases eats away at driving demand, a sign that the Delta variant is undercutting a rally in the world’s biggest oil consumer.
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Petrol inventories grew last week while a gauge of demand fell as record outbreaks in several states contributed to summer travel demand evaporating faster than usual. At the same time, drillers are pumping the most crude in a year, spurred by a rally in prices from when the pandemic seemed to be under control.
Oil traders say the result is that more barrels are coming on the market than can be consumed, raising fears of a new over-supply and sending U.S. crude prices on the longest losing streak since they went negative last April. It underscores views from the International Energy Agency that the virus will wipe away demand growth in major consuming markets.
“At this point, the market may still be concerned about how rocky the road will be to full recovery," said Spencer Vosko, director for crude oil at Black Diamond Commodities LLC in Houston. “There are even more fears about the world walking back substantially from all the positive strides it’s made over the year."
The added crude supply from places like the Permian Basin, America’s oil producing dynamo, would have been a welcome sight for a market that until recently expected to be short of crude as economies sprung back to life while OPEC kept output restrained. Just last week President Joe Biden urged the group to boost production to help lower U.S. gasoline prices.
Instead fuel consumption is slipping and demand for oil in top export markets like China is falling as Asia deals with its own new waves of infections. Crude inventories across America could start to rebuild again after dropping to pre-pandemic levels. September futures for West Texas Intermediate crude have fallen to an 18-cent premium to the October contract, the lowest level since January and a sign that traders see less prompt demand for oil.