Oil futures turned lower Tuesday, extending a sharp decline from the previous session blamed on worries about the impact on demand from the spread of the delta variant of the coronavirus that causes COVID-19.

West Texas Intermediate crude for September delivery
CL00,
-0.62%

CLU21,
-0.62%

fell 67 cents, or 0.9%, to $70.59 a barrel on the New York Mercantile Exchange. October Brent crude BRN00 BRNV21, the global benchmark, was down 40 cents, or 0.5%, at $72.49 a barrel on ICE Futures Europe. Both benchmarks fell more than 3% Monday.

The 2021 oil rally, which has seen WTI and Brent both rise around 48% year-to-date, has been driven by the resumption of economic growth as businesses have reopened and consumer demand for gasoline has risen, said Tom Essaye, founder of Sevens Report, in a note.

Ongoing continued production discipline among members of the Organization of the Petroleum Exporting Countries and their allies, or OPEC+ has also helped, Essaye said.

“While the latter will likely remain intact in the months and quarters ahead, the former is coming more into question given the delta variant’s potential impact
on virus countermeasures as well as uncertain economic trends,” he wrote.

If the demand pillar of the oil rally begins to crumble, year-to-date gains won’t be sustainable, he said.

“Looking ahead, we remain neutral on oil right now as the market looks for further insight to the current fundamentals,” Essaye said. “That will likely leave WTI pinned between support at $66 and resistance at $77/barrel.”

The September WTI contract on Nymex formed a top at $76.07 in
early July and a lower top at 74.23 at the end of last week, with the mid-June low at 68.86 being targeted to the downside, said Axel Rudolph, technical analyst at Commerzbank, in a note (see chart below).

Commerzbank

“Further down sits strong support at $66.38/$64.94, made up of the March and mid-May highs and July low,” he wrote. “This is likely to soon be reached as well.”

Investors will also be paying attention to weekly data on U.S. crude and product inventories. The American Petroleum Institute is expected to provide its inventory readings late Tuesday, while official data from the Energy Information Administration is due Wednesday morning.

Analysts surveyed by S&P Global Platts, on average, look for crude inventories to show a drop of 4 million barrels last week. Gasoline stocks are expected to show a drop of 1.1 million barrels, while distillate supplies are seen down 600,000 barrels.

September natural-gas futures
NG00,
+1.83%

NGU21,
+1.83%

jumped 2.2% to $4.023 per million British thermal units.

“After a large selloff on Friday, bullish momentum has resumed on the back of hotter weather forecasts and expectations of a smaller-than-normal storage injection to be announced later this week,” said Christin Redmond, commodity analyst at Schneider Electric, in a note.

In other products trade, September gasoline
RB00,
+0.06%

RBU21,
+0.06%

was fractionally lower at $2.2737 a gallon, while September heating oil
HO00,
-0.32%

HOU21,
-0.32%

shed 0.5% to trade at $2.1253 a gallon.

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