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Oil was the biggest loser in a large market selloff after OPEC + agreed to boost crude supply as a resurgent virus shook investor confidence in the global economic recovery.
Futures contracts in New York fell 7.5% on July 19, the biggest drop since September. OPEC and its allies have agreed to monthly increases in supply of 400,000 barrels per day. At the same time, the spread of the delta variant is fueling a mood of risk in broader markets and threatening demand for oil with further restrictions on mobility around the world. The dollar also appreciated, reducing the attractiveness of commodities denominated in the currency.
“The demand story has really taken a hard hit here, and on the supply side we’re getting more barrels of crude,” said Ed Moya, senior market analyst at Oanda Corp. “The momentum behind this decision could turn ugly.”
The Dow Jones Industrial Average lost 725.81 points, a decrease of 2.09%, to reach 33,962.04 points. The S&P 500 lost 1.59% and the Nasdaq composite slipped 1.06%.
Oil prices have been volatile for the past two weeks as OPEC + has remained in dispute over adding supplies to the market. The deal was struck over the weekend after Saudi Arabia and the United Arab Emirates reached a compromise on the UAE’s request for a more generous production limit. OPEC + will now face a “new set of challenges” next year as competing supplies increase, said Toril Bosoni, head of the IEA’s petroleum industry and markets division, in a statement. E-mail.
“As supplies from other producers outside the deal rebound and demand falls seasonally, inventories could see a further increase at the start of the year,” she said.
Countries around the world are also facing an increase in the number of new cases of COVID-19, as the highly contagious delta variant increases infections. Indonesia has overtaken India and Brazil in daily case counts. Infections in the United States exceed the global rate of increase, and the United Kingdom on July 17 reported the highest number of cases since January.
“We have a risk aversion firmly in place and everything is triggered by the spread of the COVID-19 delta variant,” said Moya of Oanda Corp. “There is this fear that you may not have the strong economic recovery that we were all hoping for in the second half of the year.
West Texas Intermediate for August delivery fell $ 5.39 to $ 66.42 a barrel in New York City.
Brent for September settlement fell $ 4.97 to end the session at $ 68.62 a barrel.
Delta tension can make oil volatile in the short term, but the deal between the Organization of the Petroleum Exporting Countries and its allies would support a “constructive” price view, Goldman Sachs Group Inc. said. The market is still. ” very tense, “despite the addition of the offer, said Ed Morse, head of commodities research at Citigroup Inc., in an interview with Bloomberg Television.
The deal spans over a year and covers millions of barrels of production, but it also remains flexible. The alliance will continue to hold talks each month starting in September, including a market review in December.
It is “a little while” before global oil supplies return to pre-pandemic levels, said Stewart Glickman, energy equity analyst at CFRA Research. “It doesn’t seem like a glut to me.”
– With the help of Rakteem Katakey, Saket Sundria and Grant Smith.
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