Oil gripped by Delta worries
The past few days have certainly not been kind to oil prices.
Oil bears remain in the driving seat with Brent falling over 7% since the start of August amid growing concerns over the Delta variant eroding demand in Asia. Fears around the rapid spread of the infectious variant has not only hit Asia but Europe and the United States. Given how cases are surging in oil-consuming giants, this certainly does not look good for the demand outlook.
The next few days could be eventful for oil as investors juggle Delta fears and the monthly oil market report from not only OPEC but the International Energy Agency (IEA).
On Thursday, much attention will be directed towards OPEC’s monthly report, which will include the cartel's output numbers for July and projections on world oil demand for the rest of 2021. If OPEC expresses optimism over the demand outlook, this could inject oil bulls with renewed confidence. However, any concerns raised around the Delta variant and downgrades to oil demand forecasts could send prices lower. Expect similar from the IEA monthly report.
More pain for oil amid China virus curbs?
It’s also worth keeping a close eye on the Covid-19 developments in China, particularly being the world’s second-largest oil consumer.
Coronavirus cases in China have jumped to a seven-month high with travel restrictions increasing in recent days to curb rising cases.
Given how such a move has impacted transport activity, this may compound oil’s woes. Expect prices to remain pressured by more negative developments in regards to Covid-19 moving forward.
What does this mean for OPEC+?
From August, OPEC+ is set to increase production by 400,000 barrels a day at a time where fears over the Delta variant have clouded the demand outlook.
However, if demand growth is hampered by surging coronavirus cases and travels restrictions – the cartel could be forced to re-think its current plan to gradually release more production into the markets.
Brent pressured below $72
Brent oil remains under pressure on the daily charts with prices trading back below the 100-day Simple Moving Average (SMA). Should $72 prove to be reliable resistance, prices may decline back towards $67. Alternatively, a breakout above $73 could open the doors back towards $76.