Oil bearish over rising COVID-19 cases

Crude oil started the New York trading session bearish, retreating from multi-year highs due to concerns over rising Covid-19 cases in Asia and ahead of this week’s OPEC+ meeting.

COVID-19 cases on the rise

The edge has been taken off the oil markets today which is currently up around 50% this year-to-date, over concerns surrounding the recent spike in Covid-19 cases in Asia. Australian authorities have placed Sydney and Darwin on lockdown and put other major cities on high alert, in an attempt to contain outbreaks of the highly contagious delta variant.

In Indonesia, the country is battling with record-high cases of COVID-19. In a bid to control the spread, authorities in the country have stated that Malaysia will extend a national lockdown beyond Monday, and Thailand has announced new restrictions in the capital, Bangkok and its suburbs.

What they are saying

On the OPEC+ projection, analysts at ING said in a note: “Our expectation is that the group will agree on a 500Mbbls/d increase for August. Anything less than this amount would likely be enough to see bulls push the market higher in the near term.”

What this means

With the spike in COVID-19 cases around the world, the overall bias remains strong as fuel demand has rebounded in the high-energy consuming countries like European countries, United States and China, in particular.

Investors should look to Thursday’s meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+), where they are set to discuss supplies for August 2021. The group is expected to ease current supply curbs given the strength in the market and concerns over recent tightness.

So far, speculative positioning indicates a switch in bias with the OPEC+ meeting just days away. ICE Brent net longs fell by just over 2,500 lots over the last week to 309,732 lots as of last Tuesday. Nymex WTI net longs declined by a similar amount to 421,757 lots. This indicates that investors are quickly shifting their bias from bull to bear. Though the drop may be insignificant, investors must brace for the possibility of a market correction as seen in the cryptocurrency market.

U.S. crude is down 0.92%, currently trading at $73.37 a barrel, after hitting a high of $74.45 in the Asian session, the highest since June 2018. Brent crude is down 1.01%, currently trading at $74.60, after hitting $76.60 at the close of market last week Friday, its highest since October 2018.