Jill R Shah, 19 July 2021
Oil was the biggest loser in a broad market selloff after OPEC+ agreed to boost crude supply as a resurgent virus shook investor confidence in the global economic recovery.
Futures in New York fell 7.5% on Monday, the largest decline since September. OPEC and its allies agreed to monthly supply hikes of 400,000 barrels a day. At the same time, the spread of the delta variant is stoking a risk-off mood in broader markets and threatening oil demand with fresh mobility restrictions around the world. The dollar also rose, reducing the appeal of commodities priced in the currency.
“The demand story has really taken a big hit here, and on the supply side, we’re getting more barrels of crude,” said Ed Moya, senior markets analyst at Oanda Corp. “The momentum behind this move could get ugly.”
Oil prices have been volatile over the last two weeks while OPEC+ remained in a dispute over adding supplies to the market. The deal was struck this weekend after Saudi Arabia and the United Arab Emirates reached a compromise on UAE’s demand for a more generous output limit. OPEC+ will now face a “new set of challenges” next year as rival supplies grow, said Toril Bosoni, head of IEA’s oil industry and markets division, in an email.
“As supplies from other producers not part of the deal rebound, and demand falls seasonally, stocks could see renewed builds early in the year,” she said.