Oil closed lower as traders assess how the spreading delta variant will impact world fuel demand the rest of the year. Futures in New York posted a 0.2% decline in New York on Thursday after trading little changed for most of the session. Goldman Sachs Group Inc. sees the variant having a transient impact on oil demand. However, the International Energy Agency cut its global oil consumption forecasts “sharply” for the rest of this year and predicted a new surplus in 2022. “The report undercuts the almost uniformly bullish sentiment that has been hitting the market as of late,” says John Kilduff, a partner at Again Capital. “The surplus we saw in the IEA data was a bit of a shock, and investors are taking note of the potential for future over-supply.”

Over the last few months, a demand rebound in key economies such as the U.S. and Europe has helped to drain bloated stockpiles built up during the pandemic and driven prices higher, but the latest virus wave is an indication that a further recovery will be bumpy. President Joe Biden, meanwhile, urged OPEC and its allies to boost supply more quickly to make gasoline more affordable for Americans. Global demand “abruptly reversed course” last month, paring gains after surging by 3.8 million barrels a day in June, the IEA said. The agency lowered estimates for global consumption in the second half of the year by 550,000 barrels a day. “The demand outlook is highly uncertain because of the delta variant,” Toril Bosoni, head of the IEA’s oil industry and markets division, said in a Bloomberg television interview. “There could be further downside risk due to the virus in the second half,” but “there’s also upside risk” from pent-up travel demand in the U.S. and Europe.

Delta’s surge has been reflected in a weakening of the oil’s market structure. The prompt time spread for Brent settled at 40 cents a barrel in backwardation — a bullish signal where near-dated contracts are more expensive than later-dated ones. That compares with 92 cents at the end of July. Traders also eyed data released Thursday by the Producer Price Index that showed rising costs for U.S. manufacturers. “The market is responding to the PPI report showing rising costs all around, and taking it as a sign of growing inflation,” said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago.