Crude oil and crude ETFs tumbled by more than 3.5% on Monday to a one-week low, falling for a third consecutive trading session amid slowing economic activity in China and suggesting that new coronavirus outbreaks could be hamstringing the world’s second-largest economy.

Although the chaos this weekend in Afghanistan might appear to be a key factor in an oil market decline, analysts seem to feel it is less important than the delta variant and what is happening with China economic data.

“The debacle in Afghanistan has attracted a lot of attention lately but there has been no visible market impact,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

“Oil prices are instead trading lower on Monday as fears around a slowdown in Asian demand overpowered hopes for supply disruptions in case the instability in Afghanistan spreads beyond its borders,” the analyst said.

Both U.S. and international crude oil benchmarks saw declines early in the session, but have since recovered a significant portion of their worst losses. Brent crude was down $2.21, or 3.1%, at $68.38 a barrel earlier in the session. Meanwhile, U.S. benchmark, West Texas Intermediate, or WTI, crude oil lost over $2.50, or 3.6%, to reach $65.73, before rebounding to $67.75 as of almost 12:30 PM EST.

Analysts are attributing the decline to the delta variant of the coronavirus and its impact on investors’ perceptions of a fruitful economic recovery.

“In a familiar refrain during recent weeks, crude and product prices are again coming under pressure as the market focuses on demand concerns linked to the rapid spread of the COVID-19 delta variant,” said Robbie Fraser, research and analytics manager at Schneider Electric, in a note.

Crude ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) are seeing losses as well, while short ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO) had been benefitting from the drop in oil prices.

Data revealed that Chinese factory output and retail sales growth fell steeply in July, failing to meet expectations as flooding and coronavirus infections damaged business activity.

“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,” said 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.”

China’s crude oil processing last month also reached its lowest level on a daily basis since May 2020, as the country scaled back operations amid a crackdown by authorities, and independent refiners slashed production as a result of more stringent quotas, increased inventories, and declining profits. China is the world’s largest importer of crude oil.

In addition to issues with Covid-19 in China, analysts are also pointed to the drop in demand as the summer nears its conclusion.

“(Concerns) about the spread of the Delta variant in China and the effects this will have on oil demand are continuing to weigh on prices,” Commerzbank said in a note.

“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.”

The coronavirus has been particularly challenging for China, as the nation has been dealing with its largest Covid outbreak since the first widely publicized cases last year. Data on Monday illustrated the country’s economic activity fell more than projected last month, with retail sales and industrial output failing to achieve forecasts. Meanwhile, unemployment climbed.

Questions of whether the economic recovery would go smoothly also grew after U.S. consumer sentiment fell sharply in early August to its lowest point in a decade, a University of Michigan survey showed late last week.

Meanwhile, the International Energy Agency (IEA) last week also noted that increasing demand for crude oil changed direction in July and was predicted to gain at a slower rate over the remainder of 2021 because of expanding coronavirus infections from the delta variant.

The fall in crude may have also affected money managers, who curbed their net-long U.S. crude futures and options holdings in the week to Aug. 10, according to the U.S. Commodity Futures Trading Commission (CFTC) report on Friday.

While crude prices have fallen steeply, the drop has had little affect on gas prices nationwide. Regular gasoline averaged $3.187 per gallon nationally on Monday, according to AAA. Prices were $3.19 a gallon a week ago, their highest in seven years.

“U.S. gasoline demand is going to stay relatively strong,” said Phil Flynn, senior market analyst at Price Futures Group. “The economy is still doing pretty good. Seasonally, of course, we start to see demand trail off as kids get back into school.”

Some of the highest prices are found in states like California, Hawaii, and Nevada, where regular gasoline averaged more than $4 per gallon.

“Gasoline prices look like they’re going to be stubbornly high for some time to come,” Flynn said.

Storm activity on the East Coast could also be affecting prices, says Flynn.

“Oil is also focused on topical storm activity in the Atlantic that could shut in production and impact oil imports and exports,” Flynn added. “ Tropical Storm Fred and Tropical Depression Grace are going to be watched by the trade.”

For investors looking for crude ETFs to play the run-up in oil, the United States 12 Month Oil Fund (USL) and the iPath Pure Beta Crude Oil ETN (OIL) are two other funds to consider.

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