The oil market experienced a direct and devastating hit from the COVID-19 pandemic, which saw prices fall to an all-time low in 2020. This is largely because oil is used in the refinement of fuels such as gasoline, diesel, and jet fuel, all of which have experienced a slump in demand in the first half of 2020. The world experienced recurrent lockdown periods, which saw some nations outlaw national and international travel to try to get a grip on the spread of the virus.
However, the approval of the vaccine and its successful rollout saw the demand for oil begin to rise again in 2021, and the outlook for its recovery was extremely optimistic. Unfortunately, this positive momentum has not been linear since the emergence and spread of the COVID-19 Delta variant, which is transmitted more quickly than the previous strain. As a trader, you may be wondering how the Delta variant has affected oil and the commodities market as a whole, so read on to find out more.
The Delta variant, oil and China
China is the world’s second biggest consumer of oil, going through an impressive 12,791,553 barrels per day. The first COVID-19 case was identified in Wuhan, China, and the country was ravaged by the effects of the virus, not knowing how best to contain it in these early stages. As a result, the emergence of the Delta variant caused the country to react very dramatically in response to minimize outbreaks.
To prevent the spread of the variant, China took to locking down whole cities, suspending certain operations in their ports, and canceling and grounding flights. Although this has helped to control the Delta variant, it has come at the cost of the country’s economic health, since the travel, retail and industrial sectors were all affected by the aggressive lockdown protocols that were implemented.
The effect of the Delta variant on the world’s economies — specifically China — have caused the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) to declare that the outlook for oil is far less positive, expecting it will continue to suffer from the decreased demand.
The effect of Delta on the commodities market
It would appear that oil is just one commodity in the market that has been affected by the Delta variant and the slowing economic momentum in China. China is the world’s biggest consumer of raw materials and as a result of its slowing growth, the market reacted with significant volatility.
The fall in prices in the commodities market is also spurred by growing uncertainty worldwide, since the Delta variant appears to be spreading at a rate that could cause countries to once again enforce lockdowns, thus disrupting their economic activity. Crude oil prices fell by 1.7% in July and copper’s value also dipped by 1.1%, experiencing a price level that was more than $1,000 below the record high that it experienced back in May 2021.
Contracts for difference (CFDs) are just one way that you gain market exposure, as you can speculate on both falling and rising markets, which can be beneficial in volatile times, the likes of which oil is currently experiencing.
If you’re considering investing in commodities and are specifically interested in how oil trading works, then you could benefit from initially opening a demo account on an online trading platform. This way, you’ll be able to test and try your speculations about price movements in the commodities market, without parting with any of your own capital.
The COVID-19 Delta variant has had a massive impact on the commodities market, as it has caused supply and demand to fall out of balance, and market prices to whipsaw. However, the outlook for the recovery of commodities, specifically oil, still seems to be optimistic and industry experts predict that oil prices should fully rebound by the end of 2022.