Oil rises but outlook cloudy due to COVID-19 and supply concerns

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An oil pump near Paris in a photo from the Reuters archive.
An oil pump near Paris in a photo from Reuters archive.

TOKYO (Reuters) – Oil prices stabilized on Tuesday, after falling nearly 7 percent in the previous session, in light of a broader market decline, driven by concerns about a rise in COVID-19 infections, which comes as producers reached a new agreement on supplies.

Brent crude gained 70 cents, or 1 percent, to $69.32 a barrel by 0651 GMT. The US crude contract for August delivery, which expires later on Tuesday, rose 86 cents, or 1.3 percent, to $67.28 a barrel. US crude for September delivery rose about 1.2 percent to $67.14 a barrel.

Analysts said that the selling, which pushed prices to their lowest levels in two months, was driven by fears of the outbreak of the Delta strain of the Corona virus, while stocks fell and bonds rose.

“Rising infections with the delta strain of coronavirus in some countries in Asia and Europe and the possibility of travel restrictions have somewhat clouded the demand for crude oil,” analysts at ING Economics said in a note.

“However, the physical market for crude oil has been witnessing a shortage over recent months, while the ongoing economic recovery is likely to remain supportive of oil demand during the second half of the year.”

US officials said on Friday that the mutated strain Delta, which is significantly more contagious than previous strains, is now dominant in the world.

The strain has been monitored in more than 100 countries around the world, and irregular vaccination campaigns in many places are undermining the battle against the virus, raising the possibility of more public isolation measures that have damaged demand for petroleum products.

But analysts say there are high-frequency indications that weekend restaurant reservations in the United States, the world’s largest consumer of crude, are at pre-Covid levels, while domestic flights are at their highest levels since the pandemic began.

Oil was also hit after the Organization of the Petroleum Exporting Countries (OPEC) and allies, the group known as OPEC+, reached a settlement on Sunday to raise production.

The OPEC+ agreement removes more supply constraints that have been supporting the market for a year. OPEC + keeps about 5.8 million barrels per day of crude out of the market, a number that will drop to two million barrels per day by the end of 2021.

(Prepared by Moataz Mohamed for the Arabic Bulletin)

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