Oil Tumbles by $5 on OPEC+ Decision, Delta Variant Spread

By Adedapo Adesanya

Oil prices lost more than $5 a barrel on Monday, closing out its worst day since March, with the Brent declining by $5.24 or 6.8 per cent to close at $68.91 per barrel, while the West Texas Intermediate was down by $5.39 or 7.5 per cent to sell at $66.63 per barrel.

This came after the Organization of the Petroleum Exporting Countries and allies (OPEC+) reached a compromise on Sunday to increase output.

The alliance noted that it would start returning 400,000 barrels per day to the market every month beginning from August until it unwinds all the 5.8 million barrels per day cuts started last year.

The prospect of monthly increments in oil supply from the OPEC+ alliance comes just as COVID infections are rising in many countries because of the faster-spreading Delta variant.

Globally, cases are already flaring up around the world because of the variant and there was no exception in the largest producing country, the United States, where cases have rebounded this month, with the contagion spreading among the unvaccinated.

The US is averaging nearly 26,000 new cases a day in the last seven days through Sunday, up from a seven-day average of around 11,000 cases a day a month ago.

This seems to be the latest worry for the crude market as it has been detected in about 100 countries around the world, including Nigeria.

However, poor rollouts and acceptance of vaccination programmes in many countries are undermining the battle against the virus, raising the prospect of more lockdowns that would hit demand for oil products.

The market is expected to hold steady after this slump as consumption in the US has steadily strengthened in recent weeks.

Meanwhile, India, the third-biggest importer, has cut back imports due to oversupply and fears of reduced demand.

Amid the current climate, some major banks have argued the market will continue to rally.

Goldman Sachs reiterated on Monday that it sees more upside, adding that the OPEC+ agreement was in line with its view that producers should focus on maintaining a tight physical market.

The Royal Bank of Canada said high-frequency indicators showed that restaurant bookings – a sign of economic health – over the weekend in the United States, the world’s biggest oil consumer, were at pre-COVID levels, while domestic flights were at the highest level since the pandemic started.