OIL FUTURES: Swoon continues for crude oil, products on supply, demand concerns

Crude oil and refined products prices continued to fall July 15 on increasing crude production from OPEC+ and the US, as well as fears of weaker-than-expected demand caused by the ongoing worldwide spread of the delta variant of the coronavirus.

Front-month NYMEX WTI dropped another $1.48/b to settle at $71.65/b — the first settlement below $72/b since June 18 — and ICE September Brent shed $1.29 to settle at $73.47/b.

As for refined products, NYMEX August RBOB plunged by another 4.32 cents to $2.2503/gal and August ULSD fell 3.09 cents to $2.1126/gal.

Prices plummeted July 14 from an unexpected jump in US fuel inventories — as well as declining gasoline demand — and reports of OPEC+ nearing a deal with the United Arab Emirates to unlock their stalemate and agree to continue unwinding their production cuts together.

The foreboding specter of rising coronavirus cases also is putting pressure on prices.

"The prospect of increasing oil supply at a time when COVID cases are on the rise again is unnerving the market," said Sophie Griffiths, market analyst at OANDA.

"The travel sector had its hopes pinned on a reasonable summer period after months of paralysis, but it doesn't look likely this will materialize," she added, specifically noting the increased economic and travel lockdowns in Europe.

As for the US, Griffiths noted that energy markets are looking past another large drawdown in crude inventories and instead focusing on the first rise in fuel stocks since early June.

"The fact that fuel demand has eased as COVID cases rise is an unsettling correlation," she added.

The US Energy Information Administration also reported rising domestic production of 11.4 million b/d — the highest since May 2020.

Within the world of OPEC intrigue, S&P Global Platts Analytics is now assuming OPEC+ quotas will rise 500,000 b/d a month from September to December, and that their deal will extend through December 2022.

While negotiations remain ongoing, OPEC+ is reportedly on the verge of ending its stalemate with the UAE, allowing the nation to pump more crude and further de-risking oil markets that had feared a prolonged deadlock and market destabilization.

The stalemate had arisen from the UAE wanting to change its production baseline within the OPEC+ pact from 3.16 million b/d as of Oct. 18 to a new April 2020 baseline of 3.84 million b/d that it said was more fair and representative of its normal production. The Saudi Arabia-led coalition of OPEC and other oil producers appeared to be nearing a compromise of 3.65 million b/d that is much closer to what the UAE desired.

OPEC said July 15 it is keeping its 2021 forecast for global oil demand at 96.58 million b/d, up 5.95 million b/d from 2020. And in its first forecast for 2022, OPEC sees demand continuing to rise by another 3.28 million b/d to 99.86 million b/d for the year, with the 100 million b/d mark exceeded in the back half of the year.

The 23-country OPEC+ coalition is currently withholding 5.8 million b/d of crude production, and analysts largely agree some of that volume is badly needed to prevent a supply squeeze that could cause prices to shoot further upwards later this summer.

Robert Yawger, director of energy futures for Mizuho Securities, said a revised OPEC+ deal with the UAE seems likely, but the longer it is delayed, the more risks enter back into the equation.

"The UAE deal does run the risk of other OPEC+ producers wanting to increase their baseline production number," Yawger said. "The longer it takes OPEC+ to announce a new meeting, the more likely other members are asking for more barrels."