Oil was up Friday morning in Asia, climbing up from three-month lows. However, the black liquid was set for a weekly decline of around 6% as the restrictive measures in place to curb the latest COVID-19 outbreaks globally continue to dampen the fuel demand outlook.
Decreasing risk appetite, with the dollar at a nine-and-a-half month high thanks to signs that the U.S. Federal Reserve could begin asset tapering later in 2021, also weighed in on oil.
“With vaccination levels relatively low, the deteriorating situation across Asia has already seen mobility fall. This will lead to a fall in crude oil demand in the region in the second half of 2021 and take the shine off an otherwise positive backdrop elsewhere,” ANZ commodity analysts said in a note.
China, the top oil importer globally, tightened restrictive measures to zero COVID-19 cases, which has impacted shipping and global supply chains as major ports remain closed. It has also restricted the capacity for flights to the U.S. Elsewhere in Asia Pacific, Australia and New Zealand remain under lockdown to curb their latest COVID-19 outbreaks.
Meanwhile, the U.S. summer driving season and European summer holidays are due to end soon, with demand expected to fall as the peak gasoline demand season in both regions draws to a close.
“Aviation remains the weakest component of global demand at the moment, and the risk of further restrictions on domestic and international travel due to COVID-19’s Delta variant will be a key variable for oil over the remainder of the second half of 2021, particularly as the U.S. driving season ends,” SPI Asset Management managing partner Stephen Innes told Reuters.