0255 GMT: Crude oil futures ticked lower during mid-morning trade in Asia June 29, extending the overnight downtrend, as the spread of the delta variant of the coronavirus raised concerns over renewed mobility restrictions.
At 10:55 am Singapore time (0255 GMT), the ICE August Brent futures contract was down 34 cents/b (0.46%) from the previous close at $74.34/b, while the NYMEX August light sweet crude contract was down 28 cents/b (0.38%) at $72.63/b. This downtrend continues from overnight when front month Brent and NYMEX light sweet crude markers closed 1.97% and 1.54% lower at $74.68/b and $72.91/b, respectively.Analysts said the market is pricing the possibility of tighter mobility restrictions after an increase in COVID-19 infections across much of Europe and Asia.
Despite its high vaccination rate, the UK has seen a surge in COVID-19 infections since January, reporting 22,868 COVID-19 infections on June 28, the highest since late January. This uptrend has been driven by the more transmissible delta variant of the coronavirus.
"Every time we see a rise in COVID-19 cases, the first thing that comes to traders' minds is that governments may rush to renew lockdown restrictions and tighten border controls, decimating oil demand. This is reflected in the prices we are currently seeing," David Lennox, resource analyst at Fat Prophets told S&P Global Platts June 29.
To Lennox's point, Hong Kong, Spain and Portugal, among other countries, have moved to place new restrictions on travelers from the UK. Furthermore, German Chancellor Angela Merkel on June 28, proposed a total ban on UK arrivals across the EU, but Merkel's plans have yet to gain traction.
Analysts said the elevated numbers in the UK have led to fears that other countries, where vaccination has thus far driven down infection rates, may also succumb to the delta variant of the virus.
The spread of the delta variant of the virus was cited by analysts as one of the reasons why the OPEC+ coalition will take a cautious approach to rolling back its production quotas. The producer group has met with several calls to raise oil production to prevent a supply shortfall, and to ensure affordable energy prices that are conducive to a global economic recovery.
OPEC+ is currently holding crude production at 6.2 million b/d below October 2018 levels and intends to taper this output cut to 5.76 million b/d in July.
It is also expected to provide guidance to its production plan for August and possibly beyond during its eagerly anticipated July 1 meeting. Ahead of the meeting, most analysts expect the producer group to announce a production hike of around 500,000 b/d in August.
"I think that OPEC+ has already reasonably broadcast what it's going to do, and that is to roll back some of the cuts, while keeping an eye on the pandemic situation and on the possibility of a [Joint Comprehensive Plan of Action] deal. OPEC+ does not want the oil price to escalate out of control, as it wants to retain market share and keep the US out of the market," Lennox said.
In the US, analysts surveyed by S&P Global Platts said they expected a 0.7 percentage point increase in refinery utilization to 92.9% of total capacity to have pushed commercial crude stocks 4.7 million barrels lower in the week ended June 25. Such a draw would have left stocks 6.3% behind the five-year average of the US Energy Information Administration data, opening the widest deficit to that average since August 2008, they said.
