Oil prices extended their losses during trading on Monday, having recorded the worst week since October. The resurgence of the COVID-19 pandemic has raised concerns about short-term demand forecasts, with New York futures retreating close to $65 a barrel after dropping 8% last week. The renewed spread of the coronavirus prompted Goldman Sachs Group Inc. to lower its economic growth forecasts for China, which recently completed a comprehensive testing program in Wuhan—the origin of the pandemic—following new confirmed cases. Cases have also risen in the United States and Thailand.
The strength of the dollar is weakening the appeal of raw materials such as oil and gold. The currency maintained its gains after jumping on Friday following a strong U.S. jobs report that fueled bets that the Federal Reserve may begin to ease its stimulus program.
**Renewed COVID-19 Restrictions**
Oil is facing significant headwinds this month as the rapidly spreading Delta variant envelops the globe, leading to new movement restrictions in some areas. This coincides with an increase in production from OPEC+. The International Energy Agency (IEA) is expected to provide an updated market overview on Thursday. The OPEC+ group will increase monthly supplies by 400,000 barrels per day starting in August, continuing until full production levels from the pandemic are restored. While the recent outbreak of COVID-19 clouds forecasts, estimates suggest that the market will be able to absorb the additional barrels with accelerating demand.
Daniel Hynes, senior commodities analyst at Australia and New Zealand Banking Group Ltd., stated, "Oil seems to be stuck in wider market movements across a range of commodities. Indicators suggest that demand remains strong in major markets such as the U.S. and Europe, and I can’t foresee these sell-offs continuing much longer if this situation persists."
**Prices**
The price of West Texas Intermediate crude for September delivery fell 3.7% to $65.77 a barrel on the New York Mercantile Exchange at 12:48 PM Singapore time after a 7.7% drop last week.
Brent crude for October delivery dropped 3.5% to $68.26 in trading on the Intercontinental Exchange after a 0.8% decrease on Friday.
The Delta variant is also impacting the structure of the oil market, with the spot margin for Brent crude narrowing to a 35-cent-per-barrel contango—an upward signal, as nearby contracts are more expensive than those dated later. This compares to a contango of 69 cents the previous week.
Chinese authorities in Wuhan completed testing for approximately 11.3 million people, covering most of the city's population, according to a press release regarding virus containment on Sunday.
In the United States, new case numbers have risen to over 100,000 daily on average, returning to levels not seen since the winter six months ago. Goldman Sachs lowered its full-year GDP growth forecast for China to 8.3% from 8.6%, assuming the government can control the outbreak in about a month. Economic risks are escalating amid rising factory gate prices, with core consumer prices experiencing the largest increase in 18 months.
