Oil fell the most in a week with the market expecting OPEC+ producers to increase supply at an upcoming meeting at a time when the delta variant is threatening to slow a recovery in demand.
Futures in New York closed 1.5% lower. The Organization of Petroleum Exporting Countries and its allies will meet Thursday, when they may decide to boost output by 500,000 to 1 million barrels a day in August, according to a RBC Capital Markets report. Meanwhile, the spread of the more infectious delta variant of the coronavirus is resulting in renewed lockdowns across parts of Asia and Australia.
The coalition “will answer the call to put more barrels on the market,” said Helima Croft, head of global commodity strategy at RBC Capital Markets, in the report. “This modest turn of the taps should be palatable to all the parties involved,” and will be “well-received” by the Biden White House, she added.
U.S. crude futures are up more than 10% so far this month with progress in Covid-19 vaccination campaigns and reopenings underpinning an ongoing global demand rebound. Whether it’s in the North Sea, the Cushing storage hub in Oklahoma, or the Middle East, futures and swaps in the world’s leading pricing locations are trading deep in a pattern called backwardation, showing how traders are willing to pay big premiums to secure physical barrels. Key benchmark crude timespreads eased somewhat Monday with exports at a major Norwegian oil field set to rise to a record.
Saudi Arabia has maintained discipline toward relinquishing supply back into the market. The 23-nation alliance has restored roughly 40% of the almost 10 million barrels of daily production it shuttered when demand collapsed last year at a tightly controlled pace to avoid outpacing demand growth.
Still, the path to recovery continues to be a jagged one and remains susceptible to viral outbreaks dampening demand. With the spread of the variant, “we believe OPEC+ should take an even more cautious approach, only raising production by 100,000 to 200,000 barrels per day, month-on-month in August,” said Louise Dickson, oil markets analyst at Rystad Energy, in a note.