Oil price slump: Market jitters as pandemic continues to surge
Oil prices suffered a major setback dropping below $70 per barrel as the market responded to surging COVID19 cases. Is there an upside?
West Texas Intermediate crude (WTI) futures fell below the key $70 level on July 20 as OPEC and its allies agreed to increase output as the Delta Covid19 variant threatens global demand. It is the first major slump in more than a month for oil prices.
In this article, we’ll look at how oil prices are being affected and what the future holds for the commodity.
A difficult day for oil traders
WTI oil settled 7.51% lower at $66.42 per barrel for its worst day since September 2020. At the time of publishing, WTI is trading above $67, 13% below its recent high of $76 achieved on July 6 (the highest level in more than six years).
Similarly, Brent crude also slipped by 6.75% on July 20 to $68.62 per barrel.
It should be noted that oil has seen a dramatic spike since the start of 2021. As more nations end economic lockdowns and remove travel restrictions, the price of oil saw a huge rise as demand for the commodity increased.
OPEC+ meets to increase production
Members of OPEC+ agreed to increase production by 400 000 barrels per month from August 2021. The increase in output is set to continue until September 202. It’s hoped that by then the entirety of the 6 million barrels per day the OPEC group is withholding, due to reduced production in 2020, will be on the market.
The OPEC+ announcement comes after the group’s failed meeting on July 1 which saw a disagreement between Saudi Arabia and the United Arab Emirates over production quotas.
Oil still up in 2021
It’s important to note that even with the sharp decline, WTI is still up 38% YTD, a stark contrast from the horrifying plunge to below $19 per barrel reported in April 2020. Oil’s recovery this year has been boosted by increased demand as worldwide economies reopened and because of oil producers limiting supply.
In April 2020, OPEC+ implemented a series of historic production cuts of 10 million bpd to support prices as demand dwindled.
As oil prices return to pre-pandemic levels, fuel prices consequently have jumped. In South Africa and the US, motorists have felt the pain at fuel pumps as the cost of petrol has risen in July 2021.
Delta Variant woes
The Delta variant of COVID19 is more contagious than previous strains. WHO reports that it is now the dominant strain globally and has been detected in about 100 countries. South Africa moved to a higher state of lockdown earlier in July to combat surging cases.
Poor vaccine rollouts in many countries are undermining the battle against the virus. This has unfortunately resulted in more lockdowns which will inevitably hurt oil demand.
Hope for recovery
Despite the slump, many analysts and firms believe production control will support prices. Credit Suisse has raised its forecasts; the firm sees Brent averaging $70 per barrel and WTI to be $67 for the year.
Some firms predict that Brent and WTI could push beyond $80 in 2021. It’s not hard to see why. Countries have become better able to combat the virus and OPEC restricting production served as a buttress against low demand.
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