Oil price rally comes to a halt on Covid concerns and supply issues

Doubts remain over the strength of global recovery

Oil prices are down on Thursday for the first session this week as concerns over demand.

The price of Brent crude oil is down by 0.78% $71.37 per barrel just after 9am, having jumped up by 1.7% on Wednesday.

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Oil prices rose buy 10% last week through to Wednesday as the US Energy Information Administration (EIA) confirmed that its crude stock fell for the third week in a row, while demand for fuel rose to the highest level since March 2020.

However, overall, the demand outlook is not so strong.

“For now, U.S. consumers appear to be shrugging off the spread of the Delta variant … However, it seems likely that we are near the peak in U.S. demand, which will act as a lid on oil prices,” Capital Economics said in a note.

Concerns over new outbreaks of the coronavirus, especially the Delta variant, are leading to doubts over the strength of the global economic recovery.

“Although prices had reversed strongly … questions remain on how the ever-surging number of cases globally will impact fuel demand,” said Avtar Sandu, senior manager commodities at Phillip Futures in Singapore.

“In the short-term, the oil market may be volatile with frequent pull-backs,” he said.

Oil prices were up on Tuesday as investors’ hopes of a recovery in demand for fuel were boosted following the US’s drug regulator approving the Pfizer Covid-19 vaccine.

Officials are hoping the approval will encourage unvaccinated Americans to take the jab, as well as encouraging state and local governments to bring vaccine mandates into action.

“With many corporations and government agencies likely to enforce vaccine mandates, return to office travel should dramatically pick up in the fall,” Edward Moya, senior analyst at OANDA, told Reuters.

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