Oil prices have started the week on a weaker note, amid concerns that the fast-spreading Delta variant of COVID-19 will impact on fuel demand and slow down China’s economic growth.

The West Texas Intermediate fell 1.4% to US$67.48 per barrel while the broader Brent Crude benchmark was down 1.53% to US$69.51/bbl.

China’s National Bureau of Statistics noted that the spread of the virus along with natural disasters such as flooding that killed more than 300 people in central China last month had affected the economy in some regions, resulting in the economic recovery being unstable and uneven.

The outbreak is believed to have spread to more than half of the country’s provinces and regions, leading to the isolation of cities and flight cancellations.

Its industrial production rose by 6.4% annually in July though this was below a Reuters’ poll of analysts expecting a 7.8% increase while a 8.5% increase in retail sales was also lower than the forecast 11.5% increase.

This has impacted on fuel demand with refineries processing 13.9 million barrels of crude per day in July, down 0.9% from the same period last year and the biggest fall in 14 months.

IEA demand forecast

All this is in line with the International Energy Agency downgrading the oil demand outlook for the rest of 2021 in its August report.

It noted earlier this month that global oil demand is now seen to rise 5.3MMbbl/d on average to 96.2MMbbl/d in 2021 and by a further 3.2MMbbl/d in 2022.

The IEA noted that global refinery activity slowed in July as new waves of Covid-19 cut into fuel demand while margins remained under pressure.

Meanwhile, oil supply rose by 1.7MMbbl/d to 96.7MMbbl/d in July after Saudi Arabia ended its extra voluntary production cut and the North Sea recovered strongly after maintenance.

ASX stocks

While the ASX small cap oilies are relatively quiet today, Winchester Energy (ASX:WEL) reported yesterday that its newly drilled White Hat 2106 well produced 65 barrels of oil and 45 barrels of water during early swabbing operations.

The company noted that the oil cut (percentage of oil to water) is steadily increasing and that production rate is expected to improve significantly once it is put on pump.

Gas metering equipment and production facilities, including a beam pump, are currently being mobilized to site with oil sales to commence within a week.

Meanwhile, 88 Energy (ASX:88E) also noted post well evaluation of the Merlin-1 well in Alaska had demonstrated the presence of light oil in multiple stacked sequences in the Cretaceous Nanushuk Formation (N20 and N18 targets).

An additional target, the N19 sand that was not previously mapped, also returned a strong hydrocarbon signature following geochemical analysis.

The company also identified appraisal drilling locations to the east of the Merlin-1 well, closer to the shelf break, where enhanced reservoir thickness and quality are expected.