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Oil Gyrates Near $70 as Investors Size Up Consumption, Virus

(Bloomberg) — Oil prices eased following a two-day gain that was powered by a drop in U.S. fuel and distillate stockpiles and a broader market rally.

West Texas Intermediate fell 0.4% after climbing almost 6% over the previous two sessions. Investors are weighing signs of continued robust demand for oil products, including gasoline, against the waves of disruption triggered by the spread of the delta coronavirus variant. In addition, China has been supplying crude from its strategic reserves to local refiners in a bid to cool prices.

Crude has been on a roller-coaster ride this week, plunging on Monday on pandemic concerns and plans by the Organization of Petroleum Exporting Countries and its allies to add supply. That was followed by a rebound, with the Energy Information Administration also reporting that oil inventories at the key storage hub in Cushing, Oklahoma, fell to the lowest since January 2020.

The delta variant has ripped through Asia, spurring a flurry of renewed curbs by governments to check its spread. In Southeast Asia, Indonesia — the region’s largest economy — has imposed a patchwork of restrictions across the sprawling country following a record daily death toll. In the U.S., Texas reported the most confirmed infections in more than three months.

“In the near term there may be some volatility, but anything below $70 will not sustain for long,” said Howie Lee, an economist at Oversea-Chinese Banking Corp., citing very strong oil consumption. “We saw risk sentiment firming globally yesterday.”

Brent’s prompt time spread was 64 cents a barrel in backwardation. While that’s a bullish pattern — with near-dated prices above those further out– it compares with 70 cents a barrel a week ago.

Although there was a unexpected build in overall U.S. crude stockpiles, distillates and gasoline supplies shrunk, according to the EIA. Data from around the world now show gasoline consumption within 4% either side of 2019 levels in the U.S., India, Spain and Portugal, while demand was down 6% in the U.K.

China’s Strategic Petroleum Reserve supplied about 3 million tons, or 22 million barrels, to processors earlier this month, according to people familiar with the situation. The move was intended to cool prices, said the people. The operation might weaken Chinese demand for imported crude.

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