Oil drops as COVID-19 surges threaten fuel demand outlook

MELBOURNE, June 29 (Reuters) – Oil prices dropped for a second day on Tuesday on worries about slower fuel demand growth as outbreaks of the highly contagious Delta variant of coronavirus sparked new mobility restrictions around the world.

Brent crude futures fell 67 cents, or 0.9%, to $74.01 a barrel by 0901 GMT, after slumping 2% on Monday.

U.S. West Texas Intermediate (WTI) crude futures fell 83 cents, or 1.1%, to $72.08 a barrel, extending a 1.5% loss on Monday.

Despite the virus flare-up, the market still broadly expects vaccine rollouts to brighten the demand outlook, analysts said.

“The narrative of the past few months has not changed: the war against the virus is being gradually won, the global economy and oil demand are recovering,” said PVM Oil analyst Tamas Varga.

“Oil supply is being effectively managed therefore dips are probably viewed by ardent bulls as attractive buying opportunities.”

The flare-up in cases of the Delta variant comes as the Organization of the Petroleum Exporting Countries, Russia and allies, together known as OPEC+, are set to meet on July 1 to discuss easing their supply curbs.

OPEC’s demand forecasts show that in the fourth quarter global oil supply will fall short of demand by 2.2 million barrels per day (bpd), giving the producers some room to agree to add output. read more

Analysts expect OPEC+ to step up supply in August as the market has tightened on strong growth in fuel demand in the United States and China, the world’s two biggest oil consumers.

Spain and Portugal, favourite summer holiday destinations for Europeans, imposed new restrictions on unvaccinated Britons on Monday, while 80% of Australians faced tighter curbs due to flare-ups of the virus across the country. read more

Talks on a travel corridor between the United States and Britain also slowed, partly on concerns about a rise in cases of the Delta variant in Britain, the Financial Times reported, citing officials. read more

Investors will be looking to the latest U.S. inventory data for cues on the outlook for demand. Crude stocks likely extended their fall for a sixth straight week, while gasoline stocks also declined, a preliminary Reuters poll showed.

Reporting by Sonali Paul; Editing by Christian Schmollinger

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