SINGAPORE (BLOOMBERG) – Oil slumped below US$65 a barrel on Thursday (Aug 19) as the US Federal Reserve signaled that it was set to start tapering asset purchases within months, hurting commodities and supporting the US dollar.

West Texas Intermediate fell for a sixth day, set for the longest run of losses since February 2020, and was 1.3 per cent lower in early trading. Most Fed officials agreed last month they could start slowing the pace of bond purchases later this year, according the minutes of their July gathering, released on Wednesday.

Additional downward pressure on crude came from a mixed report on US oil and product holdings from the Energy Information Administration. Although crude stockpiles fell, there was a surprise rise in gasoline inventories, signaling fuel demand is at risk with the delta variant menacing the nation.

Oil’s impressive first-half rally has lost momentum in July and August amid the threat to demand posed by spread of the delta variant, including in key importer China. Gains in the dollar in recent weeks have also acted as a brake on prices, making commodities priced in the US currency more expensive. At the same time, Opec+ has pushed ahead with gradually restoring supplies.

To cushion the US economy from the blow inflicted by the pandemic the Fed has been buying US$120 billion (S$163 billion) of assets every month, buoying commodities and stocks. The minutes showed that most participants now judged it could be appropriate to start reducing them.

The rapid spread of the Delta variant and the curbs imposed to contain it have clouded the outlook for energy consumption. On Wednesday, US President Joe Biden beefed up his administration’s response to a nationwide surge in infections, laying out a series of actions including vaccination boosters.

Brent’s prompt timespread was 43 cents a barrel in backwardation. While that’s a bullish pattern, with near-dated prices more expensive than later-dated ones, it’s down from 57 cents a month ago.