Oil Dips as Tension Escalates in Middle East, China Sees Delta Surge

Oil Dips as Tension Escalates in Middle East, China Sees Delta Surge

Oil dips Thursday amidst unrest in the Middle East and COVID-19 delta variant surge in China that has necessitated a fresh round of restriction and flight cuts.

Israeli aircraft strike rocket launch sites in Lebanon in a reprisal attack as tension in the region stokes demand fear. Some countries in the Asian region, Europe and America have initiated fresh movement restrictions imposed to counter rising cases of covid-19 delta variant.

International benchmark Brent crude was trading at $70.28 per barrel on Thursday, dropped 0.09% after closing Wednesday at $70.34 a barrel.

American benchmark West Texas Intermediate (WTI) traded at $68.08 a barrel at the same time for a 0.10% drop after ending the previous session at $68.15 per barrel.

Oil prices came under pressure after the US Energy Information Administration (EIA) announced Wednesday that the country’s crude oil inventories rose by 3.6 million barrels, or 0.8%, during the week ending July 30, indicating lower demand.

Although gasoline inventories decreased by 5.3 million barrels during the same week, the worsening situation in China raised investor jitters over demand after the country announced countrywide travel measures on Wednesday to stem the spread of the virus.

The Worldometer tracking website reported that China recorded 95 new coronavirus cases on Wednesday, at least 71 of which were transmitted.

This is highest the number of cases reported in China at least since January this year. The local train services have also halted in some areas in the country.

Rising tensions in the Middle East after reports of a tanker hijacking off the United Arab Emirates (UAE) coast limited further price declines.

Reports of a possible hijacking heightened regional tensions only days after the UK, US, and Israel blamed Iran for last week’s drone attack on the MV Mercer Street, which killed a Briton and a Romanian. Iran, however, denied any responsibility for the attack.

Many attacks on commercial vessels have been reported and linked to ongoing heightened tensions between Israel and Iran in recent months.

Israeli jets struck what its military said were rocket launch sites in Lebanon early on Thursday in response to two rockets fired towards Israel from Lebanese territory, in an escalation of cross-border hostilities amid heightened tensions with Iran.

The exchange came after an attack on a tanker off the coast of Oman last Thursday, which Israel blamed on Iran. Two crew members, a Briton and a Romanian were killed. Iran denied any involvement.

The growing tensions come as nuclear talks between Iran and Western powers that would ease sanctions on Tehran’s oil exports appear to have stalled.

Offsetting the geopolitical tensions, concerns over the recovery of global oil demand grew amid a surge in coronavirus cases.

Both benchmarks fell for the third day in a row to a two-week low on Wednesday, partly due to the spread of the coronavirus Delta variant.

Japan is poised to expand emergency restrictions to more prefectures while China, the world’s second-largest oil consumer, has imposed curbs in some cities and cancelled flights, threatening fuel demand.

In the United States, the world’s biggest oil consumer, COVID-19 cases hit a six-month high with more than 100,000 infections reported on Wednesday, according to a Reuters tally.

Analysts said they expect oil prices to resume their upward trend despite pandemic concerns, projecting Brent crude will trade between $75 and $80 per barrel in the second half of 2021.

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Oil Dips as Tension Escalates in Middle East, China Sees Delta Surge