Oil drops towards $66, lowest since May, on concerns due to rising COVID-19 cases

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Oil dropped towards $66 a barrel on Thursday to its lowest since May, pressured by concerns about weaker demand as COVID-19 cases rise, a stronger US dollar and a surprise increase in US gasoline inventories.

Circulation of the delta variant in areas of low vaccination is driving transmission of COVID-19, the World Health Organization said.

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“The longer-than-anticipated battle against the invisible enemy has made investors cautious and pragmatic, leading to gradually softer prices,” said Tamas Varga of oil broker PVM.

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“The potential withdrawal of monetary support, the chaotic Taliban takeover of Afghanistan that threatens with another migrant crisis, and worries about the continuous spread of the virus keep the dollar in demand, which, in turn, acts as a break on any attempted oil-price rally.”

The dollar hit a nine-month high, weighing on dollar-priced commodities.

Brent crude was down $1.72, or 2.5 percent, at $66.51 at 0816 GMT, after touching its lowest since May 21. US West Intermediate (WTI) fell $1.96, or 3 percent, to $63.50 after falling as low as $63.39, also its lowest since May 21.

Both Brent and US crude have declined for six days in a row, the longest losing streak since a six-day drop for both contracts that ended on February 28, 2020.

“Concerns about dampening demand expectations as a result of an increase in coronavirus cases worldwide have contributed to the drop,” said Naeem Aslam of Avatrade, a broker.

The International Energy Agency last week trimmed its oil demand outlook due to the spread of the delta variant. OPEC, however, left its demand forecasts unchanged.

An unexpected rise in US gasoline inventories in a weekly supply report added to demand concerns, given demand for the motor fuel typically peaks during the northern hemisphere summer.

The strong US dollar is adding to the pressure. The dollar has rallied on expectations the Federal Reserve will start tapering its stimulus this year. A strong dollar makes oil more expensive to other currency holders and tends to weigh on prices.

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