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Oil drops on China fuel demand concerns as Delta coronavirus surges
Oil prices dipped on Wednesday as analysts cut their forecasts for fuel demand in China following mobility curbs from the spread of the highly infectious Delta variant of the coronavirus, offsetting a bullish outlook for U.S. fuel demand.
U.S. West Texas Intermediate (WTI) crude futures fell 18 cents, or 0.3%, to $68.11 a barrel at 0500 GMT, after a 2.7% jump on Tuesday.
Brent crude futures dropped 16 cents to $70.47 a barrel, following a 2.3% gain on Tuesday.
While both contracts have reclaimed their 100-day daily moving average, a technical chart indicator, they appeared to lack the momentum to stage meaningful revivals as Delta variant fears continued to weigh on markets, said Jeffrey Halley, OANDA’s senior market analyst for Asia Pacific.
“Short-term momentum has waned quickly in Asia,” he added.
Beijing has imposed travel curbs that will reduce fuel demand in the world’s second-largest oil consumer, prompting Goldman Sachs (NYSE:GS) to cut its demand forecast for China by 1 million barrels per day for the next two months.
Dollar Extends Gains Ahead of U.S. CPI Release
The dollar strengthened in early European trading Wednesday, extending recent gains ahead of U.S. inflation data which could influence Federal Reserve’s tapering thinking.
At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded around 0.1% higher at 93.097, hitting its highest level since the start of April.
USD/JPY rose 0.1% to 110.67, the highest since mid July, EUR/USD was largely flat at 1.1717, near a four-month low, GBP/USD was 0.1% lower at 1.3830, near a two-week low, while the risk-sensitive AUD/USD fell 0.1% at 0.7340.
The dollar has been on the rise of late, as improving U.S. labor data and a more hawkish tone from Federal Reserve policymakers have led markets to expect the central bank to begin tapering its asset purchases later this year.
Friday’s official U.S. jobs report impressed, with nonfarm payrolls rising by 943,000 in July and numbers for May and June also being revised higher.
Now the attention turns to the second leg of the Fed’s dual mandate, with the consumer price index for July due out from the Bureau of Labor Statistics at 8:30 AM ET (1230 GMT).
Analysts are looking for a gain in the headline figure of 5.3% over last year, marginally lower than June’s 5.4%, which was the biggest monthly gain since August 2008.
Core inflation, which excludes food and energy prices, is expected to have climbed 4.3% in July from a year ago against the 4.5% jump in June, which was the quickest pace of increase since September 1991.
Asian shares undermined by virus worries; dollar, U.S. yields gain
Asian shares slipped on Wednesday as fears about the spread of the coronavirus dampened a positive lead from a record close on Wall Street, while the dollar and U.S. yields extended gains on Fed tapering talk.
European stocks were expected to fare better, with Euro Stoxx futures flat and Britain’s FTSE futures trading 0.1% higher in early trade.
MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.4%, with South Korea falling 0.6% and Taiwan shedding 0.9%.
“What’s clearly separating Asian shares from Wall Street is the difference in vaccination. Low vaccination rates in Asia are proving to be fatal to deal with the Delta variant,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities.
The Delta variant of the new coronavirus is spreading quickly in many Asian countries, raising fears about local restrictions on travel and other activity hurting the economic recovery.
Chinese blue-chips were down 0.3% but Australia gained 0.2%, helped by the announcement of a record share buyback by country’s largest bank, Commonwealth Bank of Australia (OTC:CMWAY), with its annual results.
Japan’s Nikkei also bucked the trend, gaining 0.6% on brisk earnings while Japanese bank shares benefited from higher U.S. yields.
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