U.S. Oil Drops 6% To Under $ 70 Amid OPEC Production Rise And Covid Fears

West Texas Intermediate crude futures fell below the key $ 70 level on Monday for the first time in more than a month as OPEC and its allies agreed to increase production and the variant delta Covid threatens global demand.

US oil fell more than 6% to a session low of $ 66.70 for its biggest one-day drop since March. The contract is now nearly 12% below its recent high of $ 76.98 on July 6, which was the highest in more than six years. International benchmark Brent crude slipped 5.9% to trade at $ 69.23 a barrel.

The group of 23 countries, known as OPEC +, agreed on Sunday to increase production by 400,000 barrels each month from August. The increase in production will continue until September 2022, when all of the nearly 6 million barrels per day that the group still retains will be back on the market.

The announcement came after the group’s first meeting on July 1 failed amid a disagreement between Saudi Arabia and the United Arab Emirates over the latter’s base production quota.

“We see [Sunday’s] agreement as supporting our constructive view of oil prices, with supply increasingly becoming the source of the upward momentum and evidence of likely non-OPEC supply shortages in the months to come, ”Goldman Sachs said in a statement. note to customers. producers as providing a floor for oil prices, although he noted that the delta variant could cause price fluctuations in the coming weeks.

The July OPEC + meeting, which ended without a deal, plunged the oil market into turmoil as it opened the door to a potential dissolution of the group, with each nation pursuing a policy of independent production.

“This was a renewal of OPEC + vows,” RBC’s Helima Croft said on CNBC’s “Worldwide Exchange” on Monday. “We think the market can absolutely absorb the extra 400,000 barrels per month … that’s a constructive deal.”

Energy stocks fell on the heels of lower oil prices. The group fell 4.5%, making it the worst performing sector of the S&P 500. Occidental, Diamondback Energy, Schlumberger and Marathon Oil were among the biggest drops, each dropping more than 6%.

Despite Monday’s slowdown, some Wall Street companies believe a tight market will continue to support prices. Credit Suisse raised its forecast on Sunday night and now sees Brent averaging $ 70 a barrel in 2021, down from a previous estimate of $ 66.50. The company raised its forecast for WTI to $ 67 for the year, from $ 62.

Citi, meanwhile, sees Brent and WTI climbing to $ 85 or more this year. “The summer season for the oil markets is expected to be stronger than usual this year due to pent-up leisure demand,” the company said in a note to customers.

“With the growth in demand for oil outpacing growth in supply in the near term, we still expect a tight summer, which should push up oil prices,” UBS added. The firm expects Brent to climb to $ 80 before falling to $ 75 by the end of the year.

Even with Monday’s drop, WTI is still up 38% for the year against a backdrop of recovering demand as global economies reopen and producers control supply. In April 2020, OPEC + implemented historic reductions of nearly 10 million barrels per day in a bid to support prices as demand for petroleum products plunged. WTI briefly traded in negative territory for the first time on record.

As oil prices have returned to pre-pandemic levels, fuel prices have jumped. The national average for a gallon of regular gasoline stood at $ 3.17 on Monday according to AAA, up 97 cents from a year ago.

“[Sunday’s] the deal will likely appeal to the White House, which is worried not only about the impact of rising gasoline prices on U.S. consumers, but also about a major rift between its key regional allies as it seeks to build a grand coalition of producers to fight the change Croft said in a note to customers on Sunday.