Oil advanced as a brewing hurricane shuts Gulf of Mexico crude production while the Federal Reserve reinforced its support to begin tapering stimulus by the end of the year. Futures in New York rose 2% on Friday to post the biggest weekly gain in more than a year. Oil producers in the U.S. Gulf of Mexico have begun shutting production ahead of Hurricane Ida, which may make landfall in the New Orleans area in the next few days as a Category 3 hurricane.

Meanwhile, Federal Reserve Chair Jerome Powell said the central bank could begin reducing its monthly bond purchases this year, though it won’t be in a hurry to begin raising interest rates thereafter. The central bank had hinted at such asset tapering plans weeks ago. “Clearly, the hurricane is what the market is focusing on now, at least in the short-term,” said Andrew Lebow, senior partner at Commodity Research Group. “We are going to be losing supply from refiners and some demand.”

Oil has had a volatile August with the fast-spreading delta variant of the virus leading to renewed restrictions on mobility and clouding the outlook for fuel demand. OPEC+ is scheduled to meet next week, and market-watchers surveyed by Bloomberg expect it will ratify another monthly output increase as it revives supplies halted during the pandemic.

With Ida heading for the U.S., West Texas Intermediate crude’s nearest time spread strengthened. That firming structure comes amid expectations of tighter supplies as production is shut in the Gulf of Mexico. The relative strength in U.S. crude has also narrowed its discount to the global Brent benchmark. Operators already shutting in production or in the process of doing so include BP Plc, Royal Dutch Shell Plc and Chevron Corp.

Oil fell on Thursday for the first session in four amid renewed concerns about demand recovery as more restrictions are imposed to curb Covid-19 infections. Fresh outbreaks fueled by the delta variant of the coronavirus are raising concerns about the strength of the economic recovery globally, hitting demand for oil and other commodities. “Given the risks around the delta variant of the coronavirus, but also the accelerating vaccine programs, it’s possible that the second half of the year also sees a bit of a stop-and-go development before things (hopefully) normalize in 2022,” Eurasia Group said in a note.

Helping to boost prices around 10% through Wednesday, U.S. crude inventories fell last week for a third consecutive week while overall fuel demand increased to the most since March 2020, the Energy Information Administration (EIA) said. But the demand picture wasn’t entirely bullish. “The headline draw was welcome news but a steep drop in crude exports and lackluster jet fuel demand prevented prices from extending gains,” Edward Moya, senior analyst at OANDA, said in a note.

Distillate stockpiles, which include diesel and jet fuel, rose last week, gaining 0.6 million barrels to 138.46 million barrels, against expectations for a 0.3 million-barrel drop, according to the EIA data. Oil stocks dropped by 3 million barrels in the week to Aug. 20, a little above than analysts’ expectations in a Reuters poll for a 2.7 million-barrel drop. At 432.6 million barrels, crude stocks were at their lowest since January 2020.

Gains this week in prices have been helped by a major outage in Mexico, where a fire on Sunday on an offshore platform killed at least five workers and knocked out a bit over 400,000 barrels per day (bpd) of production.  Pemex has so far recovered 71,000 bpd of production and in the next few hours expects to add an additional 110,000 bpd.

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The U.S. government plans to sell the largest volume of oil in seven years from its strategic reserves at a time when domestic refiners are gearing up for seasonal maintenance and oil consumption historically drops. That’s weighing on West Texas Intermediate crude. Meanwhile, an improving demand outlook overseas is keeping Brent prices elevated, further contributing to the gap.

The U.S. strategic reserves sale comes at a time when domestic refineries are already scaling back operations earlier than normal with the delta variant starting to impact domestic demand. The spread weakness is a stark contrast from just a few months ago when the U.S. market was reaching a crunch point with fuel-making plants ramping up operations to meet strong summer demand.

The wider spread may reignite interest in WTI-linked U.S. crude overseas. Shipments have been shaky over the last few weeks with many regions responding to the fast-spreading delta variant by imposing various restrictions.

While buyers from Asia, the largest customers of U.S. oil, may seek out supply from the Strategic Petroleum Reserves offer, there will be some competition. Chinese and Indian governments have also been offering crude from their respective strategic stockpiles, the bulk of which are sour, to domestic refineries.

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Oil extended gains from the biggest jump in five months as China’s success in stamping out virus flare-ups boosts optimism of a demand recovery.

U.S. oil futures rose 2.9% while Brent topped $71 a barrel. Crude clung to gains after an industry-funded group reported after the close that stockpiles fell last week. China has rapidly brought local virus cases down to zero and road traffic is showing signs of recovery. The country also reopened its Ningbo port, one of the busiest in the world, after a two-week shutdown. “The developments out of China are reigniting expectations that oil demand would start to rise again,” said Phil Flynn, senior market analyst at Price Futures Group Inc.

Meanwhile, a fire on a Mexican oil platform wiped out more than 400,000 barrels a day of the nation’s output, roughly equivalent to what OPEC+ will discuss adding back to the market when it meets next month.

Covid’s resurgence has interrupted oil’s rally and prompted speculation that OPEC+ may reassess its current plan to return additional barrels to the market when it meets Sept. 1. Goldman Sachs Group Inc., however, reiterated that the demand impact from delta would be transient, while UBS Group AG sees Brent crude recovering to $75 a barrel on market tightness.

This week’s rally has coincided with a sharp strengthening in timespreads that indicate prompt demand. The difference between the nearest two December Brent futures contracts jumped by $1 a barrel in the past two days. Gains in the global benchmark increased its premium to WTI to the widest since April.

Later this week, investors will also be considering the Jackson Hole symposium — being held virtually from Thursday — which may offer insights into how the Federal Reserve plans to scale back stimulus.

Meanwhile, the  American Petroleum Institute reported a 1.622 million decline in U.S. crude stockpiles, and a nearly 1 million drop in gasoline stocks. The group also reported a 245,000 barrel dip in distillate stocks last week, which if confirmed by the U.S. government Wednesday, would be the smallest drop since January.

Despite the positive strides against the Delta variant, hurdles still remain to restoring demand. Chinese airlines plan to operate the fewest flights in August since February, according to data from Cirium. In Malaysia, rising infections are threatening to aggravated shortages of semiconductors and other components that have hammered automakers for months.

Fueling Strategy: Please fuel as needed today/tonight ~ Be Safe

Oil rose the most in nine months, buoyed by a broader market rebound and signs of progress in stemming the pandemic’s spread.

U.S. crude futures climbed 5.6% in New York on Monday, the biggest one-day advance since early November. With concerns about China’s wealth crackdown easing, investors rushed into stocks and commodities. Meanwhile, the world’s most populous nation quashed domestic virus cases to zero while U.S. regulators granted full aproval to the nation’s most widely used Covid-19 vaccine.

“Today is a big snap back,” said Leo Mariani of KeyBanc Capital Markets Inc. Oil’s scorching rally over the first half of the year ran into stiff headwinds in recent weeks on concerns the resurgent virus could prompt OPEC and its allies to pull back on supply increases. Traders will be watching the Federal Reserve’s annual Jackson Hole symposium that starts later this week for clues to any changes in policy by central bankers.

“We’ve seen quite some pressure in recent weeks with Covid dominating headlines again,” said Hans van Cleef, senior energy economist at ABN Amro Bank. “So that could also explain a big part of today’s support. Bargain hunting and a spillover from the positive sentiment in other asset classes.”

The delta variant has also weakened the oil futures curve. The prompt time spread for Brent was 44 cents a barrel in backwardation — where near-dated contracts are more expensive than later-dated ones. That compares with 92 cents at the end of July. Goldman Sachs Group Inc. said in a note that prices had “overshot time spreads to the downside, suggesting an oversold market.”

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West Texas Intermediate futures ended the session 2.2% lower, tumbling for a seventh day and extending the week’s decline to 8.9%. Other raw materials including copper and iron ore fell on Thursday following the Fed’s signal. The Bloomberg Dollar Spot Index has risen every day this week, making commodities priced in the currency less appealing. The pandemic remains a threat to energy demand, especially across Asia, with key importer China restricting mobility to combat an outbreak. “It’s an exceptionally rare event for oil to fall for such an extended period,” said Thomas Finlon, chief operating officer at Brownsville LLC, a trading and logistics firm in Houston. “External factors including the ongoing effects of the delta variants’ growth and the behavior coming out of the federal reserve, is proving surprisingly significant to investors.”

Crude’s weakness comes amid fading expectations for further large inventory draws in the coming months. Bank of America said prices will probably be range-bound in the second half of the year with more steep drops in stockpiles unlikely. The price plunge may force the Organization of Petroleum Exporting Countries and its allies to pause their next planned production increase, according to Citigroup Inc. “We have now priced down to a level reflecting more sideways inventories, with demand pain from Covid-19 together with more from OPEC+ on supply,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “But OPEC+ should be in fairly good control of the market still.”

The pandemic continues to disrupt plans to restart economic activity, crimping mobility and demand for fuels. In Australia, Sydney’s two-month long lock down will be extended until at least the end of September. In the U.S., more companies announced plans to keep workers at home as the virus spreads. Brent crude is also sinking. The international benchmark is headed for its longest run of losses in more than three years and close to falling below $65 a barrel for the first time since May.

Despite lower headline prices and the commodity being unable to shake investors’ risk averse mood as of late, Brent’s nearest timespread widened to 44 cents, an indicator of long term bullishness. The number of people in the U.S. getting a first dose of a Covid-19 vaccine has risen to almost half a million a day, a level last seen at the end of May, as the overall vaccination rate in the U.S has increased to 60%.

“The people who are pessimistic about delta will tell you prices will continue to slump into the future,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “While that’s certainly possible, if we continue to see positive data coming out of the White House, and OPEC is able to modify production as needed, it’s very possible we’ll see a rise in the near future.”

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Oil fell for the sixth day in a row to the lowest level since May after the U.S. Federal Reserve on Wednesday signaled it was set to start tapering asset purchases within months.

West Texas Intermediate futures ended the session down 2.7%, dipping below $64 a barrel amid a broader commodity selloff as the prospect of reduced stimulus shook markets. The delta virus variant for air travel is denting demand, with enthusiasm for air travel waning in the both the U.S. and Japan. Asia’s physical market is softening with muted buying from China and a move by India to sell oil from its strategic reserves.  “The dollar is seeing considerable strength as the Fed moves to cool the economy,” said John Kilduff, a partner at Again Capital LLC. “Oil was already seeing downward pressure as the market reeled from softened demand coming out of China, and waning commodities appeal is encouraging the slump further.”

Oil’s rally in the first half of the year has lost momentum since July amid the threat to demand posed by the spread of the delta variant. At the same time, OPEC+ pushed ahead with gradually restoring supplies. The combination of factors has led leading analyst to lower price forecasts for the last half of the year.

To cushion the U.S. economy from the blow inflicted by the pandemic, the Fed has been buying $120 billion of assets every month, buoying commodities. The minutes of the bank’s July meeting showed a potential pullback in its monthly bond purchases, as most participants now judged it could be appropriate to start reducing the pace of stimulus. “Economic growth concerns, stronger dollar and a risk-off environment are not helping oil,” said Giovanni Staunovo, an analyst at UBS Group AG. “Demand will continue to recover in an uneven way over the coming weeks and the oil market remains under-supplied. So that should still support prices down the road.”

Road traffic remains depressed in various Southeast Asian countries as various levels of lock downs are still in place. “Indicators for consumption coming out of the region have global influence,” said Stewart Glickman, energy equity analyst at CFRA Research. “Where China goes, investors follow.”

Crude in New York dropped to the lowest since May after a surprise increase in U.S. gasoline inventories signaled fuel demand is under threat with the delta variant menacing the nation.

West Texas Intermediate ended its session down 1.7% to settle at $65.46 a barrel, the fifth straight daily decline. Futures briefly dipped below $65 for the first time since May in after-hours trading. Minutes from the latest Federal Reserve meeting suggested that tapering of monthly asset purchases could begin as soon as this year, a move that could strengthen the dollar and lower the appeal of commodities priced in the currency, said Phil Flynn, senior market analyst at Price Futures Group Inc.

Domestic gasoline stockpiles inventories climbed by 696,000 barrels, the first increase in more than a month, according to data released by the Energy Information Administration on Wednesday. Meanwhile, crude stockpiles declined by a larger-than-forecast 3.23 million barrels.

“After the EIA data came out, the market initially reacted positively, but as traders assessed the fundamentals with respect to demand risk, they changed their tune,” said Bart Melek, head of global commodity strategy at TD Securities. “The stronger dollar had an additional impact, but what it comes down to is that the market is reeling from delta’s continued threat to consumption.”

Oil fell for a fourth day, marking its longest run of losses since March, pressured by a rising dollar and economic data illustrating the U.S. recovery’s uneven path.

Futures declined 1% on Tuesday. The dollar climbed, weakening the appeal of commodities priced in the currency. U.S. retail sales fell in July by more than forecast, while factory production strengthened the most in four months. Data from China on Monday revealed a slowdown in the economy last month. “Poor data coming out of China is ground zero for reignited global concern surrounding Covid-19,” says Phil Flynn, senior market analyst at Price Futures Group. “Although indicators in the U.S. shows a better situation than China, as the second largest economy, what happens in the region has huge market impact.”

Meanwhile, the industry-funded American Petroleum Institute report U.S. crude stockpiles fell 1.16 million barrels. The U.S. government will release its supply data on Wednesday.

After a vigorous rally in the first half of the year, crude’s advance has been checked in recent weeks. The delta variant has spurred fresh curbs on mobility in many nations including China, harming energy consumption. Against that backdrop, JPMorgan Chase & Co. has been among banks reducing oil price forecasts. “China is the world’s engine for participated demand growth,” says Thomas Finlon, director of Energy Analytics Group LLC. “When demand shows signs of a downturn, you can be sure the effects will spread.”

While demand has been challenged, the Organization of Petroleum Exporting Countries and its allies including Russia have stayed the course in relaxing their output curbs imposed in the early phase of the pandemic. Supplies will rise by 400,000 barrels a day this month. With prices softening, OPEC+ delegates said they don’t see a need to accelerate the revival of output, despite a call from U.S. President Joe Biden last week for the cartel to restore more production to bring gasoline prices down. The group’s next regular meeting is set for Sept. 1.

The API also reported inventories at the nation’s biggest storage hub at Cushing, Oklahoma, fell 1.74 million barrels last week, that will be the biggest decline since June if the EIA report matches it.

Oil fell for a third consecutive day as Chinese economic data disappointed and the spread of the delta coronavirus variant hurt prospects for global demand. Futures declined 1.7% on Monday, the biggest loss in a week as fresh outbreaks in Asia weigh on China’s economy, with retail sales and industrial output slowing. U.S. stock markets were also weaker, with energy and travel-related companies slumping on worries that further restrictions could threaten nascent rebounds. “As data begins to reflect the full impact of the shutdown in China, investors are worried this negative trend we’re seeing won’t just be a localized issue,” says Bart Melek, head of global commodity strategy at TD Securities. “We are moving from expectations of a robust deficit to a potential surplus as the variant continues to halt the growth rate of demand.”

After rallying in the first half of the year, crude prices have stuttered since mid-July. The spread of the delta variant, including in key consumer China, has undermined the outlook for consumption as restrictions on mobility are reintroduced. At the same time, OPEC+ has proceeded with plans to gradually increase production, rolling back the supply curbs it imposed in the early days of the pandemic. “China is the main driver of the market right now, but we’re also getting into a slack demand period as summer travel trails off,” says John Kilduff, partner at Again Capital LLC. “All of this points the market in one direction.”

China’s oil refining slumped to the lowest level in 14 months as private processors scaled back operations amid a crackdown by authorities. Daily crude processing fell below 14 million barrels a day last month for the first time since May 2020, according to Bloomberg calculations based on government figures released on Monday. The nation has been dealing with its most widespread Covid outbreak since the initial cases in 2020, with fresh lock downs imposed. Data on Monday showed China’s economic activity slowed more than expected last month, with retail sales and industrial output missing forecasts, while unemployment rose.

As the market has wobbled in recent weeks, money managers have turned less positive toward U.S. crude futures. Speculators now hold their smallest outright long position in WTI since April 2020.

There are signs U.S. shale producers are ramping up activities. Crude output at major shale basins is set to rise to 8.09 million barrels a day, the highest since April 2020, according to the Energy Information Administration. Production in the Permian Basin is set to reach its highest since March of last year, the agency said.