U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished mixed last week after failing to sustain an early rally. Weighing on prices were concerns over demand following a bearish report from the International Energy Agency (IEA). However, a friendly outlook from OPEC dampened some of those concerns. Nonetheless, worries over demand are not expected to go away over the near-term as long as the number of COVID-19 delta variant infections continue to surge globally.

Last week, October WTI crude oil settled at $68.21, up $0.11 or +0.16% and October Brent crude oil finished at $70.59, down $0.11 or -0.16%.

Demand Concerns Return to Forefront

“Rising demand for crude ground to a halt in July and is set to rise at a slower pace over the rest of 2021 because of the surge in infections from the coronavirus Delta variant,” the IEA said on Thursday.

After that news was released major banks and research firms posted similar warnings.

Goldman Sachs has reduced its estimate for the global oil deficit to 1 million bpd from 2.3 million bpd in the short-term as demand is set to decline in August and September. Looking beyond the near-term risks from Delta, the bank still expects the demand recovery to continue alongside rising vaccination rates.

Similarly, JPM Commodities Research said, “We now see the global demand recovery stalling this month with oil demand only reaching 98.3 million barrels per day (bpd) in August and averaging 97.9 million bpd in September, on par with the nearly 98 million bpd average in July.”

In addition to acknowledging zero effect of the COVID-19 surge on global demand in 2021 and 2022, OPEC also raised its expectations for supplies next year from other producers, including U.S. shale drillers, which could potentially snarl efforts by the group and allies, known as OPEC+, to achieve a balance in the market.

Whitehouse Worried about High Gasoline Prices

Last week, the Whitehouse was a source of confusion after it first urged OPEC and its allies as well as U.S. producers to boost oil output then changed course and said it would not call on U.S. producers to increase crude output, and that efforts to increase OPEC production were a longer-range plan.

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The Whitehouse requests probably had to do with concerns over rising gasoline prices and their effect on inflation.

The Whitehouse may have gotten its wish after all as U.S. energy firms added the most oil rigs in a week since April as the total rig count more than doubled from a record low a year ago amid a recovery in crude prices.

The combined oil and gas rig count, an early indicator of future output, was up for the second week in a row, increasing nine to 500 in the week to August 13, its highest since April 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.

Weekly Outlook

This week’s price action will be dictated by demand. Traders are watching demand in the Asia-Pacific region especially in China. In the U.S., traders will learn more about the impact of the COVID surge in this week’s American Petroleum Institute (API) and Energy Information Administration (EIA) reports. The key components that will be watched closely will be gasoline and distillates.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire


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