Crude oil prices are set for the biggest weekly drop since mid-March due to a clouded short-term demand outlook caused by uncertainty around OPEC+ production policy and a resurgence of COVID-19 infections in some countries. Oil futures at the NYMEX traded near $72 per barrel on Thursday, the lowest in a month after falling 2% from the prior day.
Oil prices have climbed in seven of the previous eight months thanks to a robust global demand recovery. However, prices have faced headwinds in July on mounting supply worries. A stronger dollar has also put pressure on oil prices this week, making commodities priced in the US currency less attractive to market participants.
Saudi Arabia and the UAE are reportedly nearing a deal, but further details remain unavailable. Additional OPEC+ supply would weigh on prices further. However, there is also a risk of OPEC+ reaching no deal and keeping the current production levels through August and beyond. Under such a scenario, the International Energy Agency warned that the market would significantly tighten. Meanwhile, Citigroup forecast Brent prices to rise above $80 per barrel even if the group agreed on a deal.
On the other hand, demand concerns occur in Southeast Asia, where the highly contagious coronavirus delta variant is spreading fast. Indonesia, the region’s largest economy, has overtaken India as the new virus epicentre. Meanwhile, its neighbouring countries are also seeing record infection numbers. In Australia, Melbourne launched a lockdown, while Sydney prolonged restrictions until the end of the month.
