Oil futures: Covid fears send Brent 6.6% lower as Wall Street flashes red

Quantum Commodity Intelligence –  Brent crude oil futures slumped almost $5/b to a seven-week low of under $69/b in late afternoon London trading hours Monday, as a global selloff that started in Asia amid resurging Covid infection rates rippled through Wall Street, sending commodities and equities south.

Front-month September Brent futures were trading at $68.70/b at 1634 GMT, compared to Friday's settle of $73.59/b - a fall of 6.65%.

At the same time, August WTI was trading at $66.97/b, down from Friday's settlement of $71.81/b - a 7.2% fall.

Around five hours earlier, Brent was hovering above $71/b and WTI was above $69/b, while the earlier Brent Singapore minute marker was at $71.83/b.

Mounting concerns over the surge of Covid in south-east Asia, particularly in Indonesia where the daily infection rate has surpassed that of India and Brazil, have rattled markets, while infections in Europe are also climbing.

Fears that Europe and the US could face new restrictions after the summer to combat the spread of the Delta Indian variant sent the FTSE 100 index of leading UK companies 2.6% lower and the S&P 500 index of leading US shares 1.6% down.

Compounding those fears is a new OPEC+ deal to increase production by 400,000 barrels per day each month going forward, theoretically until output is fully restored, although the group is expected to continue its regular meetings and match supplies with returning demand.

"The meeting resolved to adjust upward their overall production by 400,000 bpd on a monthly basis starting August 2021, until phasing out the 5.8 million bpd production adjustment," said OPEC in a statement Sunday.

As part of the deal, a number of producers will have baseline production levels revised upwards, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq.

The UAE will see its baseline production, from which cuts are being calculated, increasing to 3.5 million bpd from May 2022 from 3.168 million, while Saudi and Russia will see their baselines rise to 11.5 million bpd from 11 million.

While markets initially tanked, some analysts remain bullish claiming the deal ends any risk of a major fracture within the producer group and so over the longer term may prove supportive for the market.

"The new agreement is likely to see prices come under pressure in the short term, as investors unwinding positions on the prospects of higher supply in coming months. However, even with higher output, the market remains relatively tight," said Daniel Hynes, senior commodity strategist at ANZ, but added, "OPEC's ability to reach an agreement should dispel concerns that the alliance is at risk of breaking up."

Investment bank Goldman Sachs sees the deal as 'supportive' for oil markets, although warned against short-term volatility. 

"All else equal, this represents $2/b upside to our $80/b summer and $5/b upside to our $75/b 2022 Brent price forecasts, although market focus on the Delta variant and higher (OPEC+) baselines will likely delay such price impacts," said Goldman in its report published after the meeting.