Delta = Variable

Delta is defined by Merriam-Webster as “an increment of a variable.”  The Delta variant of Covid is (ironically) causing a massive number of variables through global economies.  Oil prices today remain stable as Covid cases push Japan into an extended state of emergency, Asian demand remains weak, New Zealand implements a new lockdown after one Covid case is found, and U.S. shale oil output rises. 

Japan has extended its state of emergency that was set to expire on August 31.  The restrictions impact nearly 60% of Japan’s population.  The spread from the Delta variant has 80% of Tokyo’s critical care hospital beds used and threatens the country’s entire medical system.  “Dai-ichi Life Research Institute estimated that the government’s extended and expanded state of emergency would lead to a total economic loss of about 1.2 trillion yen ($11 billion) and could cost 66,000 jobs.”[1]

For four consecutive months, China has drawn down on their crude inventories.  China, the world’s largest importer of oil, had shown an 8.9% increase in throughput through July of 2021 based on the same period of 2020.  Escalating demand for crude reversed in July and is anticipated to increase at a slower rate through the end of 2021 with increasing cases of Covid associated with the Delta variant.  As cases rise, mobility is threatened as people remain in their homes.  In July, retail sales in China rose 8.5% but missed the forecast of 11.5%.  While retail showed growth, auto sales added an additional blow to oil markets by declining 1.8% from July 2020.  To further stunt growth, floods and typhoons also hit the country.  Like Japan, travel restrictions and lockdowns are anticipated to reduce any increase in GDP through the end of the year.

New Zealand, however, is in an entirely different situation.  Prime Minister Jacinda Ardern announced a nationwide lockdown as they have experienced their first case of Covid since February.  The case was found in Auckland, and they are now facing a seven-day lockdown while the rest of the country faces three days.

Earlier in August, New Zealand had anticipated to open international travel to those from “low risk countries” in early 2022.  Additionally with the chaos in Asia, international travel (and jet fuel) faces more challenges through the end of the year.

U.S. shale oil output, however, is expected to rise to 8.1 million bpd in September.  This would be the highest level since April of 2020.  The growth will be driven by the Permian basin’s anticipated growth to 4.8 million bpd while Eagle Ford and the Bakken basin are anticipated to decline.  As energy prices rise, companies are more inclined to increase their drilling operations.  In the Appalachian basin, natural gas will show a modest increase to 34.4 billion cubic feet per day.

The remainder of 2021 will be impacted by the resurgence of the Delta variant.  As economies throughout the world had anticipated reopening, the current trends are not showing favorable results.

 

[1] https://www.reuters.com/world/asia-pacific/japan-set-extend-covid-19-state-emergency-lockdown-sept-12-2021-08-17/

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