Oil futures fell Monday, extending last week’s loss as investors continued to monitor rising COVID-19 cases in India and other countries ahead of a meeting later this week of the Organization of the Petroleum Exporting Countries and its allies — a group known as OPEC+.
India’s COVID-19 “nightmare is impacting oil prices and may cause OPEC+ to cut back production of oil instead of standing pat” with the previous agreement to gradually lift production from May through July, said Phil Flynn, senior market analyst at The Price Futures Group.
India is recording more than a third of all new COVID-19 cases globally each day, or an average of more than 260,000 daily in the last week. India has suffered 195,123 deaths, according to its official numbers, or fourth-highest in the world, although those numbers are understood to be underreported.
There are some estimates that the situation in India could lead to “a 300,000 barrel a day reduction in oil demand, and that is weighing on prices,” said Flynn, in a note.
West Texas Intermediate crude for June delivery fell 83 cents, or 1.3%, to $61.31 a barrel on the New York Mercantile Exchange. June Brent crude, the global benchmark, was off 95 cents, or 1.5%, at $65.16 a barrel on ICE Futures Europe.
The number of daily cases in India has hit a record of almost 350,000, and “while the government has not imposed a national lockdown, we are instead seeing regional restrictions,” said Warren Patterson, head of commodities strategy at ING, in a note. Given that, “the impact on oil demand, at least for now, will not be as severe as we saw during the national lockdown last year.”
“However, there will clearly be some impact, and some refiners in the country are already reacting to weaker fuel demand by reducing run rates,” he said.
Uncertainty over the demand outlook will be a topic for discussion when OPEC+ officials meet this week. They will also need to weigh the possible outcome of the Iranian nuclear talks and the potential return of the country’s crude output to the market, Patterson said.
ING assumes Iranian supply could return to 3 million barrels a day by the end of the year, up from around 2.3 million barrels a day at present, but the firm’s balance sheet still shows the market would draw down inventories, he said, indicating that while Iran headlines could dent sentiment, the development might not prove as bearish as it first appears.
For now, “the rampant spread of COVID-19 in India, continued delays in vaccine roll-out in Europe, and fears regarding the potential for a deal with Iran, all are likely to keep prices down,” said The Price Futures Group’s Flynn.
Back on Nymex, petroleum product futures also moved lower, with May gasoline down 1.7% at $1.96 a gallon and May heating oil losing 0.8% to $1.86 a gallon.
May natural gas shed 0.4% to $2.72 per million British thermal units.