Oil prices have remained steady on September 9, 2021, as the Delta variant of the coronavirus continues to weigh on the demand outlook. The commodity has managed to offset the decline in US Gulf of Mexico output due to the damage caused by Hurricane IDA.
Brent crude gained 4 cents to trade at $72.64 per barrel by 0901 GMT and the West Texas Intermediate (WTI) crude dropped by 11 cents, which translates to 0.16% to trade at $72.64.
Nearly 77% of US Gulf production remained offline on September 7, equating to around 1.4 million barrels per day. The market has lost nearly 17.5 million barrels of oil so far. The Gulf’s offshore wells make up around 17% of US output.
Notably, the US crude oil production is projected to drop by 200,000 barrels per day in 2021 to reach 11.08 million barrels per day, according to the U.S. Energy Information Administration (EIA) report on September 8. EIA noted that Hurricane Ida needs to force a bigger decline than its past projection for a drop of 160,000 barrels per day.
Nevertheless, the prices were pressured by the U.S. Energy Information Administration yesterday cutting its 2021 global oil demand growth projection with minimal change to its 2022 estimate. One oil analyst at London brokerage PVM Oil Associates, Tamas Varga, stated:
“The latest wave of the coronavirus, the spread caused by the Delta variant, made investors cautious and pragmatic last month. This pessimism has been reflected in the latest Short-Term Energy Outlook released by the EIA yesterday afternoon.”
Also weighing on the sentiment, the US Federal Reserve cut its projection for US GDP growth in 2021 owing to the resurgence of the coronavirus. Data published by American Petroleum Institute (API) showed that crude drawdown for the week that ended on September 3 was smaller than it was expected in a Reuters poll. However, gasoline and distillate drawdowns were considerably bigger than expected.
World’s Major Economies Surpass Pre-Covid Oil Demand
Some of the biggest economies in the world are seeing oil consumption turn the curve and manage to exceed pre-pandemic levels as dropping Covid-19 infection cases push recovery in economic activity.
Oil demand in the world’s biggest energy consumer, China, will be about 13% higher in the next quarter than what it consumed in the same period in 2019 before the pandemic struck. Data acquired from SIA Energy shows that Indian fuel sales extended a rebound in August, while the American consumption of petroleum products just reached record highs.
Europe has also had its best August for gasoline demand in the past ten years, according to IHS Markit. The growth in consumption across the major economies is underpinning oil prices that have rallied nearly 40% in 2021. Against that backdrop, the OPEC+ alliance decided to keep restoring crude oil supply earlier in September, citing tight balances into year-end.
Sengyick Tee, an analyst at Beijing-based SIA, said:
“The worst for Asian fuel demand is over and we see a soft recovery of oil demand in the coming months.”
China’s general oil consumption will be spearheaded by an over 20% spike in gasoline use next quarter from 2019. While motor fuel appears to be responsible for this incredible recovery as people hit the roads after months of lockdown, the situation for most of the other oil products is not as positive. Jet fuel appears to be languishing since there is no significant international air travel.
Indian diesel use has dropped considerably due to seasonal factors, even though SIA Energy expects demand for the fuel in China to rise by 4% next quarter from 2019. Construction and trucking activities normally drop in India from June to September due to the monsoon rains.
The monsoon season weighs on demand for diesel, the country’s most popular fuel, before it surges once more toward the end of the year amid crop harvesting and festivals. The chairman of Indian Oil Corp., which is the country’s biggest refiner, Shrikant Madhav Vaidya, stated:
“Sales volume of petrol has already crossed pre-Covid levels, with diesel likely to reach there in the next two to three months.”
Indian processors are set to have “limited upside potential” for run rate surges this month as they strive to cope with excess diesel that has been produced from the gasoline-making process. that is a factor explained by the head of South Asia oil at industry consultant FGE, Senthil Kumaran.
A turning point is expected to come sometime in October, with runs possibly rising past 5 million barrels per day by the end of this year. The Chinese run rates have inched up with state-owned Sinopec refining most crude in 11 months in August, based on data acquired from local consultancy SCI99.
Nevertheless, activity at most of the private refiners in Shandong province is just above 70% amid a government-led clampdown on the industry. But, with some of the biggest economies in Asia reporting thousands and tens of thousands of virus infections daily, some threats to energy demand persist as the region races to vaccinate its people.
One analyst at energy consultancy firm Wood Mackenzie Ltd, Qiaoling Chen, stated:
“Resurgence risk is a concern that we have built into our outlook, particularly for populous countries such as India and Indonesia. For now, the worst for Asia oil demand is over, but the downside risks remain.”