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Oil Heads Lower as Traders Await this Week’s OPEC+ Decision

Oil futures edged lower Monday, pulling back modestly after ending last week at their highest levels since October 2018.

Concerns that the spread of a COVID variant in Europe and Austria will lead to less travel, easing demand for fuel, put pressure on oil prices, as traders awaited a decision this week by the Organization of the Petroleum Exporting Countries and its allies on crude production levels.

The group of producer, known as OPEC+, will hold technical meetings on Tuesday and Wednesday to review the oil market, ahead of official meetings of OPEC, as well as the wider OPEC+ group, on Thursday via videoconference that are expected to result in a decision on production. 

S&P Global Platts Analytics views an August quota increase of 500,000 barrels per day as the “most probable outcome” of the July 1 OPEC+ meeting, said Paul Sheldon, chief geopolitical adviser, political risk and oil supply analytics, at S&P Global Platts, in emailed commentary. “Saudi caution over both global demand uncertainty and Iran nuclear talks will likely prevent a larger commitment, until the next meeting in early August.”

West Texas Intermediate crude for August delivery fell 86 cents, or 1.2%, to $73.19 a barrel on the New York Mercantile Exchange.

September Brent crude the most actively traded contract for the global crude benchmark, was off 89 cents, or 1.2%, at $74.49 a barrel on ICE Futures Europe. August Brent crude which expires at the end of Wednesday’s trading session, fell 91 cents, or 1.2%, to $75.27 a barrel.

With Brent in the mid-$70/b range, a 500,000 barrel-per-day quota increase would “demonstrate sensitivity to the fragile demand recovery,” said Sheldon.

Platts Analytics expects that size of a quota increase to be “bullish, even with risk of some 1.8 million barrels of noncompliance,” because OPEC needs to “either add some additional volume for August or increase the quota by 1 million barrels,” he said.

In early April, OPEC+ agreed to gradually rollback previous output cuts from May through July. Saudi Arabia also said it would ease the voluntary cuts the kingdom had been making since February. OPEC+ had been holding back roughly 8 million barrels a day of output at the time, 1 million of which represented the Saudis’ voluntary cut.

Traders were also keeping tabs on COVID-19 cases, with concerns that the spread will hurt demand for travel — and fuel consumption along with it.

Oil prices were taking a hit “over the new setbacks that the COVID-19 pandemic is landing in Europe, Southeast Asia and Australia,” said Louise Dickson, oil markets analyst at Rystad Energy, in a market update.

Australia was battling to contain several COVID-19 clusters around the country, with experts warning that the country was facing the most dangerous days since the early stages of the pandemic.

“The forecast for oil demand recovery over the summer may be a bit overestimated and traders are facing a reality check this week as the Delta variant reached Europe and as an infections surge in Southeast Asia and Australia is bringing back lockdowns,” said Dickson.

“We could see a flurry of travel restrictions reinstated in Europe as a result of the Delta variant’s spread, which would weigh on gasoline, diesel, and jet fuel demand, and prices will take notice,” she said.

In Monday dealings, July gasoline shed 1.2% to $2.24 a gallon and July heating oil lost 0.8% to $2.13 a gallon.

The July natural gas contract which expires at the end of the day’s session, tacked on 2.6% to nearly $3.59 per million British thermal units. Prices settled Friday at their highest since January 2019, buoyed by expectations that high temperatures in the western U.S. will boost demand for the fuel.

Source: Marketwatch

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