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Oil prices rose on Friday, pulling up from three-month lows, but they were still on track for a weekly loss of over 5% as new lockdowns in countries facing surging cases of the Delta variant dampened the outlook for fuel demand.
Broader investor risk aversion also weighed on oil with the U.S. dollar jumping to a nine-month high on signs the U.S. Federal Reserve is considering reducing stimulus this year.
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U.S. West Texas Intermediate (WTI) crude futures for September, due to expire on Friday, rose 40 cents or 0.6% to $64.09 a barrel at 0458 GMT, after sliding 2.7% on Thursday. The more active October contract rose 39 cents or 0.6% to $63.89 per barrel.
Brent crude futures rose 32 cents or 0.5% to $66.77 a barrel, after dropping 2.6% on Thursday to its lowest close since May.
"The spread of Delta variant in Asia is likely to dampen demand for crude oil, and may cloud the outlook for oil prices," DailyFX strategist Margaret Yang said, adding that mounting concerns over global growth were weighing on the oil market.
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"Japan has extended its emergency lockdown and confirmed cases are on the rise in countries such as South Korea, Malaysia, Philippines, Vietnam and Thailand, whose industries need oil, which will also be affected by the Delta variant," Yang said.
China has imposed new restrictions with its "zero tolerance" coronavirus policy, affecting shipping and global supply chains, and the United States and China have imposed tit-for-tat flight capacity restrictions.
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Meanwhile Delta variant outbreaks in Australia and New Zealand have sparked strict lockdowns.
The approaching end of the U.S. peak gasoline demand season and end of summer holidays in Europe and the United States are also set to sap oil demand.
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"Aviation remains the weakest component of global demand at the moment, and the risk of further restrictions on domestic and international travel due to the Delta variant will be a key variable for oil over the remainder of H2, particularly as the U.S. driving season ends," said Stephen Innes, managing partner of SPI Asset Management.
(Reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by Edwina Gibbs)
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