Oil prices plummeted on Tuesday as the resurgence in Covid cases globally driven by the Delta variant fuelled concerns that restrictions on economic activity may be reimposed.
Global benchmarks WTI and Brent Crude slid 1.39 per cent and 1.12 per cent to hit $70.41 and $72.22 respectively – WTI briefly dipped below $70.
Prices have hovered around the $70 mark for nearly two weeks now, reversing sharp losses. However, the reemergence of fears that the rapid spread of the Delta variant of coronavirus could trigger a reintroduction of restrictions on economic activity has dampened prices.
The losses pared back morning gains, partly attributed to improved consumer confidence led by the global vaccine rollout enabling countries to end measures to curb the spread of Covid has kept household and business spending at elevated levels.
High demand for goods and raw materials used in production processes has fed soaring demand for fuel, putting upward pressure on oil prices in recent weeks.
A recovery in prices is starting to feed through to oil majors’ bottom lines. BP today reported profits for the second quarter of this year reached $28bn, prompting the company to hike its dividend four per cent and kick off a $1.4bn share buyback programme.
Manufacturers, who typically use high levels of fuel in their production processes, are scrambling to ramp up supply of products to match resurgent global demand as economies emerge from the Covid pandemic.
Elevated demand and low supply is pushing up prices as oil suppliers capitalise on strong order volumes by hiking prices.
Chris Williamson, chief business economist at IHS Markit, noted that this is “perhaps the strongest sellers’ market that we’ve seen since the survey began in 2007, with suppliers hiking prices for inputs into factories at the steepest rate yet recorded.”
Concerns are intensifying over whether rising oil prices will limit the economic recovery from the pandemic. According to IHS Markit’s latest US manufacturing PMI, factories are struggling to secure key inputs due to the high cost of procuring them, which is in part constricting output levels.