Oil futures: Crude creeps higher, caught between OPEC+ and Covid
Quantum Commodity Intelligence – Crude oil futures drifted lower Monday, as uncertainty over the OPEC+ standoff and Covid-19 restrictions weakened market sentiment, although prices rebounded later in the session.
Front-month September Brent futures were trading at $74.97/barrel (1645 GMT), compared to the pre-weekend settle of $75.55/b and having earlier traded down to $74.50/b
At the same time, August WTI was trading $74.01/b, down from Friday's settle of $74.56/b.
Informal talks aimed at breaking the impasse between Saudi Arabia and UAE on production levels are expected to continue this week, but so far there have been no reports of progress over the weekend.
Russia said Monday there are no current plans for talks between Heads of State.
A week-long holiday starts in the Middle East on July 19, which effectively means a breakthrough would be needed before that date to ratify the proposed 400,000 bpd OPEC+ increase in August.
"Uncertainty has enveloped the market in the wake of OPEC's stalemate over future production increases," said Daniel Hynes, senior commodity strategist at ANZ.
"In the absence of a deal, the current production cuts remain in place, which should see the market tighten further amid strong demand. However, a lack of unity in the group presents a real risk over the medium term."
Market watchers have said a deeper split in the OPEC+ producer group could result in a breakdown of the current OPEC/OPEC+ alliance.
Spreads
Meanwhile, front and second month crude futures spreads have narrowed sharply over the past few days amid fears that rising covid-19 infections will knock off predictions of a strong return to economic growth this year.
Front line and second line Brent and WTI, which were trading at $1/b in backwardation last week, are now closer to just $0.70/b as fears that the so-called Delta variant will hit demand for travel not just in Asia, but also elsewhere.
"The excitement in oil prices that led Brent close to reaching $78 per barrel has all but dissipated as the OPEC+ discord takes a back seat to market worries over the resurgence of Covid-19 cases globally and the impact on oil demand in the near term," said Louise Dickson of Rystad Energy.
The flattening of the backwardation structure is a sign of nearby weakness of oil demand and comes after a meeting between G20 finance ministers on Saturday where the US Treasury Secretary warned of turbulent economic times.
"We are very concerned about the Delta variant and other variants that could emerge and threaten recovery," US Treasury Secretary Janet Yellen said in Venice after G20 talks among finance ministers at the weekend.