Oil extended losses as a coronavirus resurgence raised concerns about demand ahead of an OPEC+ meeting this week that could see the alliance boost some halted output.
Futures in New York dropped 0.4% after falling back below $73 a barrel on Monday. The more infectious delta variant of the virus has resulted in a spike in UK cases and led to renewed restrictions and lockdowns in other regions. While the crude market has tightened, the latest flare-up may feature in talks when OPEC+ gathers Thursday to decide on adding more supply in August.
Oil slips back below $73 as investors weigh demand concerns
Oil is still up around 10% this month as a rebound from the Covid-19 pandemic accelerated in key regions including the US and China, underpinning a surge in fuel consumption and tightening supply worldwide. Futures and swaps in leading pricing locations are in a bullish backwardation structure, although the spread is narrowing in what could be early signs of some weakness.
“Oil prices are trimming back because of rising concerns about the spread of the Covid-19 Delta variant,” said Victor Shum, vice president of energy consulting at IHS Markit. However, demand is spiking, driven by countries including the US, China and the Middle East, he added.
West Texas Intermediate for August fell 0.4% to $72.59 a barrel on the New York Mercantile Exchange at 11:02 a.m. in Singapore.
Brent for August settlement slid 0.5% to $74.32 on the ICE Futures Europe exchange after falling 2% on Monday.
The prompt time spread for Brent was 54 cents in backwardation, compared with 73 cents a week earlier.
The UK on Monday reported the most new Covid-19 cases since January, and Hong Kong, Spain and Portugal all imposed new restrictions to visitors from the nation. Authorities are also racing to contain outbreaks in Australia. The virus flare-up may lead to export-focused refiners in Asia trimming processing rates.
Meanwhile, OPEC+ expects that the market will remain in deficit this year if it keeps production steady, according to data that technical experts will review on Tuesday ahead of the coalition’s main meeting. The group may boost daily output by 500,000-to-1 million barrels, RBC Capital Markets said in a note.