Rising Cases of Delta Variant Threaten Economic Recovery
July 20, 2021
Crude oil and refined fuel product prices crashed yesterday by more than 6% which was mainly driven by the OPEC+ decision to raise baseline oil output production levels and add 400,000 bpd on top of these new levels from August through December 2021. The rising delta COVID-19 cases around the world going up and threatening fuel demand also pressured prices in yesterday’s trading.
The funds are very long in the energy space and once the selling started yesterday it continued to trigger more selling as many positions were being taken off the table after a long uptrend in this market.
ANZ said the OPEC+ agreement is likely to see prices come under pressure in the short term, as investors unwind positions on prospects of higher supply in the coming months. It stated that even with higher output, the oil market remains relatively tight. It stated that the likelihood of oil prices surging higher over the next month or two has diminished. It lowered its short-term Brent price target for the next three months to $78 per barrel.
Many investment banks have scaled back their forecast as the delta variant is being seen as a threat to their forecast. Goldman Sachs cut its Q3 Brent crude oil price forecast to $75 per barrel from $80. Goldman still believes that Q3 demand for crude oil will exceed supply by 1.5 million bpd down from 1.9 it its last estimate.