Delta, Delta. The whole day through. Just an old sad song keeps Delta on our minds. I said Delta, Delta. A song of you. Comes as sad and clear as moonlight through the pines.

The oil trade can’t get Delta off of their minds. China shutting down planes, trains, and automobiles because of the delta variant. They are testing almost everybody in the Wuhan province and scaring the oil markets. This is happening even though most doctors and experts say the evidence suggests that the delta variant will only have a modest impact on overall economic growth.

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Not even the fact that gasoline demand surged and supply fell 5.3 million barrels last week and are about 3% below the five-year average for this time of year as reported in the Energy Information Administration (EIA) weekly supply report, could get delta off of their minds. 

We should also mention that overall product demand surged to 20.5 million barrels per day over the last four weeks, which is back to pre-pandemic levels even as we saw surprise increases in oil supply. That incredible comeback should have given oil a boost even as we saw a surprise increase in crude oil supplies in Cushing, OK, and overall refinery runs did an uptick a little bit but not as much as expected. But the increase in crude supply is probably a one-off as supplies should start to fall back in the coming weeks.  

The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.6 million barrels from the previous week. At 439.2 million barrels, U.S. crude oil inventories are still 6% below the five-year average for this time of year. Stocks at the Cushing, Oklahoma, delivery hub fell for an eighth straight week, dropping by 543,000 barrels to 34.9 million barrels, the lowest since January 2020, the EIA said. Distillate fuel inventories increased by 0.8 million barrels last week and are about 6% below the five-year average for this time of year.

In other words, this data would normally have been very bullish if it weren't for the delta variant concerns. I'm not a doctor but from what I am reading it appears that the delta variant comes fast and furious but peaks quickly. We've seen evidence that demand in India, one of the places first hit with the delta variant, is already coming back in a big way and despite the fact that China is taking some extreme precautions, the expectations are that we will see the demand bounce back even after a short term dip. The rest of the world shows demand is very strong and supplies are getting tighter so we do think that this correction for oil will be coming to an end soon.

Reuters reports that U.S. utilities injected a smaller-than-normal 21 billion cubic feet (bcf) of natural gas into storage last week as hot weather caused power generators to burn more of the fuel to keep air conditioners humming, a Reuters poll showed on Wednesday. That compares with a build of 32 bcf during the same week a year ago and a five-year (2016-2020) average injection of 30 bcf. In the prior week ended July 23, utilities added 36 bcf of gas into storage. If analysts are on target, the injection during the week ended July 30 would take stockpiles to 2.735 trillion cubic feet (tcf), 6.1% below the five-year average and 16.3% below the same week a year ago. The U.S. Energy Information Administration (EIA) will release its weekly storage report at 10:30 a.m. EDT (1430 GMT) on Thursday.