Oil futures moved lower on Tuesday as traders weighed worries about the impact on energy demand from the spread of the delta variant of the coronavirus that causes COVID-19.

After the Organization of the Petroleum Exporting Countries and their allies — a group together known as OPEC+ — reached a deal earlier this month to gradually raise output, “the focus has turned back to the demand side,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Oil demand is “caught in the same uncertainty over the potential ramifications of [the delta] wave and Chinese government intervention in the economy as equity markets,” he told MarketWatch.

For now, oil prices continue to “consolidate the gains it made earlier this year in the $65 to $77 range, said Cieszynski.

Weekly U.S. petroleum inventory data due Wednesday “probably won’t move the needle very much,” he said, though Wednesday’s Federal Reserve statement on monetary policy “may have some impact” on oil. The Atlantic hurricane season may still also lead to fluctuations in oil prices “if any big storms get into the Gulf of Mexico.”

West Texas Intermediate crude for September delivery

the U.S. benchmark, fell by 39 cents, or 0.5%, at $71.52 a barrel on the New York Mercantile Exchange after settling Monday with a 0.2% loss.

Front-month September Brent crude
the global benchmark, was down 13 cents, or 0.2%, at $74.37 a barrel on ICE Futures Europe, on track to post its first loss in six sessions. October Brent

the most actively traded contract, lost 30 cents, or 0.4%, at $73.40 a barrel.

“The delta variant appears to have lost much of its scare factor for the oil market,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.

Oil futures has erased the sharp drop seen on July 19 following the OPEC+ agreement to raise production by 400,000 barrels a day each month beginning in August until 5.8 million barrels in existing output curbs are eliminated.

That drop, however, appeared to have little to do with the OPEC+ decision, Fritsch and other analysts have said. Instead, it was driven largely by concerns the spread of COVID cases caused by the delta variant could prompt renewed business lockdowns that would jeopardize the outlook for a continued global economic recovery and rising demand for crude oil.

Now, “hopes are pinned on the success of the advancing vaccination campaigns and on the fact that new infections — as can be seen in India and the United Kingdom —may soon pass their peak in other countries, too,” Fritsch wrote.

Meanwhile, the oil market remains “slightly undersupplied” despite OPEC+ plans to boost oil output and doesn’t run the danger of becoming oversupplied until 2022, he said.

Traders await the latest weekly data on U.S. petroleum supplies from the Energy Information Administration on Wednesday.

On average, analysts forecast a decline of 2.5 million barrels in domestic crude inventories for the week ended July 23, according to a survey conducted by S&P Global Platts. They also forecast weekly supply declines of 1.3 million barrels for gasoline and 1.6 million barrels for distillates.

On Nymex Tuesday, August gasoline

lost 0.2% to $2.30 a gallon and August heating oil

fell 0.7% to $2.14 a gallon.

August natural gas
which expires at the end of Wednesday’s session, traded at $3.99 per million British thermal units, down 2.7%, after settling Monday at the highest since December 2018.

Last week’s U.S. natural-gas inventories are estimated to have climbed by approximately 20 billion cubic feet more than the five-year average for the same week,” said Christin Redmond, commodity analyst at Schneider Electric. “If this figure is confirmed in the EIA’s report on Thursday, it would mark a third consecutive week that the storage deficit declined.”

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