(Bloomberg) – Crude oil had its biggest drop in a week today, as the market expects OPEC + to increase supply at its next meeting and at a time when the delta variant threatens to slow down the recovery in demand.
Futures in New York closed 1.5% lower. The Organization of Petroleum Exporting Countries and its allies will meet Thursday to decide whether to increase production from 500,000 to 1 million barrels per day in August, according to a report by RBC Capital Markets. Meanwhile, the spread of the most contagious delta variant is causing new lockdowns to be implemented in parts of Asia and Australia.
The coalition “will answer the call to put more barrels on the market,” Helima Croft, head of global commodities strategy at RBC Capital Markets, said in the report. “This modest turn to the taps should be acceptable to all parties involved” and will be “welcomed” by the Biden White House, he added.
Crude futures in the United States have risen more than 10% so far this month thanks to the advance of the vaccination campaigns against covid-19 and the reopening of different economies that support the rebound in global demand that is underway. Whether in the North Sea, Cushing’s storage facility in Oklahoma, or the Middle East, futures and swaps at the world’s top price locations are deeply traded in a pattern called “backwardation,” showing how traders are doing. willing to pay large premiums to secure physical barrels. Crude’s key benchmarks eased a bit on Monday and exports at a major Norwegian oil field were expected to rise to a record.
Saudi Arabia has maintained discipline to return supply to the market. The 23-nation alliance has restored roughly 40% of the nearly 10 million barrels of daily production it closed when demand collapsed last year at a strictly controlled pace to avoid outpacing demand growth.
Still, the road to recovery remains bumpy and susceptible to viral outbreaks that reduce demand. With the spread of the variant, “we believe that OPEC + should take an even more cautious approach, increasing production from 100,000 to 200,000 barrels per day, month after month, in August,” said Louise Dickson, an oil markets analyst, in a note. from Rystad Energy.
In recent weeks, cases of the delta variant have increased in Europe and Asia, prompting further travel and circulation restrictions. The United Kingdom on Monday reported its highest number of new COVID-19 cases since January, and Hong Kong, Spain and Portugal imposed new restrictions on visitors from the United Kingdom. At the same time, authorities are rushing to contain the outbreaks in Australia.
Meanwhile, the possibility of Iranian barrels returning to international markets was potentially complicated after US forces carried out airstrikes Sunday against Iranian-backed militias in Iraq. Militias are responsible for attacks on US facilities in Iraq, the US Department of Defense said.
Nota Original:Oil Dips With OPEC Seen Hiking Output as Delta Variant Spreads