Futures in New York fell 0.6% toward $71 a barrel after closing at the lowest in a month on Thursday. The fast-spreading delta variant is sweeping across the globe, leading to renewed restrictions and curbing fuel demand. The United Arab Emirates is nearing a deal that would give it better terms and allow OPEC+ to boost output in the coming months, although details remain scant.
A stronger dollar has also weighed on crude this week, making raw materials priced in the U.S. currency less attractive to investors. The Bloomberg Spot Dollar Index climbed to the highest level since early April on Tuesday.
Oil has run into headwinds in July after climbing in seven of the previous eight months as the global economy recovered from the pandemic. Risks seem to be to tilted to the upside, however, with the International Energy Agency warning Tuesday that the market would significantly tighten if OPEC+ doesn’t reach an agreement to lift output. Citigroup Inc. is predicting global benchmark Brent will rise above $80 a barrel even if there is a deal.
The need for supplies from OPEC will continue to climb, remaining well above the group’s current production and exceeding pre-virus levels by the second half of 2022, the cartel said in a monthly report on Thursday. There may be a lull in the first quarter, however, that could see the market return to surplus.
“The emergence of the delta variant around the globe is threatening more lockdowns and travel restrictions, casting a shadow over the outlook for energy demand,” said Margaret Yang, a strategist at DailyFX in Singapore. The OPEC+ saga is “feeding uncertainties on the supply-side,” she added.
- West Texas Intermediate for August fell 0.6% to $71.22 a barrel on the New York Mercantile Exchange at 7:40 a.m. in London after sliding 2% in the previous session.
- Futures are down 4.5% this week.
- Brent for September settlement slipped 0.6% to $73.02 on the ICE Futures Europe exchange after losing 1.7% on Thursday.
- Futures down 3.3% this week, set for third weekly loss.
- The prompt timespread for Brent was at 68 cents in backwardation, compared with 81 cents a week earlier.
Indonesia, Southeast Asia’s largest economy, surpassed India in new daily cases this week, cementing its position as Asia’s new virus epicenter, while several of its neighbors are also seeing record case numbers. Melbourne entered a snap lockdown after Sydney extended restrictions through the end of July. Los Angeles County told its residents they must wear masks indoors — even the vaccinated — following a surge in cases.
The UAE’s energy ministry issued a statement acknowledging talks with Saudi Arabia, but said no agreement had yet been reached with the whole of OPEC+. While the market needs extra barrels, a compromised deal with the UAE may open the door for other members to redress their own grievances.
Other market news:
- Trading has begun in China’s national carbon market, a system that’s now the world’s biggest emissions exchange hub in the top polluting nation.
- Indian gasoline sales during the first half of July were 3.4% higher than the same period in 2019, prior to the pandemic, according to preliminary data from officials with direct knowledge of the matter.