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Oil prices steady as virus spread counters tight supplies

07/27/2021 | 05:21pm EDT
FILE PHOTO: Pump jacks are seen outside the West Siberian city of Kogalym

NEW YORK (Reuters) -Oil prices held steady on Tuesday ahead of the release of U.S. inventory data as investors worried that global demand could be dented by surging COVID-19 cases, even though supplies are tightening and vaccination rates rising.

U.S. crude oil, gasoline and distillate inventories fell last week, according to two market sources, citing American Petroleum Institute figures on Tuesday. U.S. crude prices settled slightly lower and pared losses after the API report.

The API data showed crude stocks fell by 4.7 million barrels for the week ended July 23 and gasoline inventories fell by 6.2 million barrels and distillate stocks fell by 1.9 million barrels, according to the sources, who spoke on condition of anonymity.

Analysts polled by Reuters expected the data to show U.S. crude stocks fell by about 2.9 million barrels and gasoline stocks fell by 900,000 barrels in the week to July 23. [EIA/S]

Official inventory data is due from U.S. Energy Information Administration on Wednesday.

Brent futures slipped 2 cents to settle at $74.48 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 26 cents, or 0.4%, to settle at $71.65. That was the first decline for Brent in six days.

U.S. crude pared losses in post-settlement trade as the markets reacted to the API data, trading at $71.89 a barrel by 5:06 p.m. ET (2106 GMT).

"The problem right now seems to be the Delta variant of the coronavirus, which is holding the market back even though all the evidence right now suggests a dramatic tightening of supplies," said Phil Flynn, senior analyst at Price Futures Group in Chicago. He said that tightness otherwise should cause prices to "break out to the upside."

Britain reported its highest number of deaths and people in hospital with coronavirus since March. The U.S. Centers for Disease Control and Prevention (CDC) was set to recommend fully vaccinated Americans wear masks indoors in some instances, sources said.

The United States issued travel warnings to Spain and Portugal because of rising COVID-19 cases.

Olympic host city Tokyo was on track to report a record number of coronavirus cases even as athletes continued to compete.

Global economic growth prospects remained strong, even though most economists in Reuters polls were worried about new variants of the coronavirus.

The International Monetary Fund maintained its 6% global growth forecast for 2021, upgrading its outlook for wealthy economies but cutting estimates for developing countries struggling with surging infections.

U.S. consumer confidence inched up to a 17-month high in July, with households' spending plans rising even as concerns about higher inflation lingered.

Analysts tracking mobility data remain confident about fuel demand, counting on vaccinations.

Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, to raise production.

"Robust road traffic data across most major regions suggests rising infections are having minimal impact," ANZ Research analysts said.

U.S. gasoline futures rose to their highest since October 2014 in intraday trade after gaining almost 10% over the past six days. That boosted the 3-2-1 and gasoline crack spreads - a measure of refining profit margins - to their highest since May.

"Gasoline strength represents a bullish consideration across the complex as it has begun to translate to stronger Brent premiums against WTI," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

The premium of the Brent front-month over WTI rose to its highest since May.

(Additional reporting by Ahmad Ghaddar in London, Shu Zhang and Sonali Paul in Singapore, and Jessica Resnick-Ault in New York; Editing by David Holmes, David Goodman, David Gregorio and Cynthia Osterman)

By Scott DiSavino

ę Reuters 2021
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