Crude set for worst week since March on OPEC+ anxiety, shows data

Oil headed for the biggest weekly loss since mid-March as a resurgence of Covid-19 and uncertainty around the prospect for an Opec+ deal to increase supply clouded the short-term outlook.

Futures in New York fell 0.6 per cent 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 US 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 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.

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 neighbours 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.