Oil Falls in Biggest Weekly Decline in Months on Demand Worries
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Oil Falls in Biggest Weekly Decline in Months on Demand Worries

By the Al Attiyah Foundation, Qatar

Oil Falls in Biggest Weekly Decline in Months on Demand Worries

Oil prices fell about 1% on Friday, posting their steepest weekly loss in months, on worries that travel restrictions to curb the spread of the Delta variant of COVID-19 will derail the global recovery in energy demand. Brent crude oil futures settled down 59 cents, or 0.8%, at $70.70, while U.S. West Texas Intermediate (WTI) crude futures fell 81 cents, or 1.2%, to settle at $68.28 a barrel. For the week, global benchmark Brent shed more than 6%, its largest week of losses in four months, and WTI tumbled nearly 7% in its biggest weekly decline in nine months.

The slump in crude prices over the last week has come as the Delta variant has prompted renewed mobility restrictions. Both China and Japan have reinstated lockdown measures in some regions to limit the spread of the highly transmissible variant. Japan is poised to expand emergency restrictions to more regions of the country, while China, the world's second-largest oil consumer, has imposed curbs in some cities and canceled flights.

Also, U.S. President Joe Biden said that COVID-19 cases in the United States, which have climbed to a six-month high, will go up before they come down and that the new Delta variant is taking a needless toll on the country.

Crude futures also came under pressure as the dollar strengthened after monthly U.S. job growth came in higher than expected. A stronger dollar makes greenback-denominated oil more expensive for buyers in other currencies. 

U.S. oil rigs rose two to 387 this week, energy services firm Baker Hughes Co said. Growth in the rig count has slowed in recent months as drillers continue to focus on capital discipline. 

Benchmark Crude Prices

Asian Spot Prices Rally to Eight-Year Seasonal High Amid LNG Supply Crunch

Spot prices for LNG in Asia rose this week to their highest for this time of the year since 2013, as buyers prepare for more extreme temperatures amid a supply crunch. The average LNG price for September delivery into North-East Asia was estimated at about $16.90 per million British thermal units (mmBtu), up $1.30 from the previous week, industry sources said. Demand for LNG, mainly used in thermal plants to generate electricity, rises during the Northern Hemisphere summer to meet air-conditioning needs. Additionally, buyers are already securing demand ahead of winter. Europe has failed to replenish inventories since then, competing for world spot demand with China, a top consumer with scarce storage capacity. Beijing Gas bought one cargo to be delivered between September 26-30 into the Yuedong terminal at a price well above $15 /mmBtu in a tender in which it was seeking three cargoes, industry sources said. China's Shenzhen Energy bought a cargo for August 19-27 delivery to the same terminal at $16.20 per mmBtu, they said. PetroChina sold a cargo for delivery into the Fujian terminal in China over September 4-8 at $16.14/mmBtu. A fire at Gazprom's Urengoy gas condensate preparation facility in the Yamal region on Thursday also supported prices, traders said. Record exports earlier this year from the United States helped make up for production disruptions in the East but the amount of gas flowing to export plants has slipped. 

U.S. natural gas futures held steady on Friday as forecasts for less air conditioning demand next week than previously expected offset an outlook calling for the weather to remain much hotter than normal through late August. Front-month gas futures settled at $4.14 per mmBtu, the same as on Thursday. But after closing at its highest since December 2018 earlier in the week, the front-month was still up about 6% this week after sliding almost 4% last week. With Asian and European gas both trading over $15 per mmBtu, analysts said buyers around the world will keep purchasing all the LNG the United States can produce since U.S. fuel was selling for around $4. Prices at TTF in the Netherlands, the European benchmark, were on track to hit a record high for the second day in a row on Friday.

Benchmark Gas Prices

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