Oil prices drop to 3-month low with pressure building from demand concerns and a stronger US dollar
- WTI crude fell below $63 a barrel on Thursday, hitting the lowest price since May on demand worries.
- Rising COVID-19 cases are stoking concerns about waning demand for oil.
- Strength in the US dollar has also weighed on dollar-denominated oil prices.
Oil prices slumped to a three-month low Thursday with concerns about a recovery in demand stoked by increasing coronavirus infections while the commodity was weighed by a climb in the US dollar's value against major currencies.
West Texas Intermediate crude dropped as much as 4% to $62.83 a barrel, the weakest price since May 21. Brent crude, oil's international benchmark, lost as much as 3.5% to $65.83 a barrel.
WTI trimmed the loss to 3.2% and Brent pared the decline to 2.8%, aided in part by a weekly fall in US jobless claims to a new pandemic-era low.
Oil prices came under pressure as investors assess reports of continuing increases in COVID-19 cases, with higher case counts potentially hurting demand for oil as economies struggle to reopen. The US 7-day moving average of daily virus cases on Thursday surpassed 130,000 for the first time since February, according to data from the Centers for Disease Control and Prevention. The US government on Wednesday recommended Americans get vaccine booster shots as the highly transmissible Delta variant spreads.
"WTI is now 17% off its highs and with $65 having fallen in the process, worse days may lie ahead. Further support may now lie around $60 in WTI and $64 in Brent but it could get worse if the Covid situation continues to deteriorate," said Craig Erlam, senior market analyst at Oanda Europe, in a note.
"Of course, that may depend on OPEC+ and whether recent developments encourage the producers to pare back their taper ambitions in anticipation of lower demand. That seems unlikely in the near-term given that oil prices remain at decent levels, despite the drop."
A rise in cases in China has also been a source of concern but local lockdown measures appear to have slowed the pace of infections as of Thursday.
Meanwhile, oil prices have been hurt by strengthening of the US dollar against major rivals. The US Dollar Index on Thursday rose to 93.50, the highest since early November.
The greenback has been gaining since minutes from the Federal Reserve's July meeting released on Wednesday suggested the central bank is on course this year to start reducing stimulus measures put in place to help the economy mend from the COVID-induced recession. A stronger dollar makes oil and other dollar-denominated commodities more expensive for holders of other currencies to buy.
Goldman Sachs economists on Wednesday said the impact of the Delta variant on growth and inflation is proving to be somewhat larger than they had expected, leading them to lower their third-quarter GDP forecast to 5.5% from about 9%.
"Spending on dining, travel, and some other services is likely to decline in August, though we expect the drop to be modest and brief," Goldman Sachs said.