Oil prices fall over glut worries as OPEC+ set to lift output, Bonny Light gains 1.43%

Oil prices slipped on Monday over fears pertaining to oversupply as the Organisation of the Petroleum Exporting Countries (OPEC) and its allies prepare to wind back production cuts in August and a surge in global coronavirus cases implies a more sluggish recovery in demand.

Brent crude futures fell by 44 cents or 1.01% to $43.08 a barrel at 10:29 West Africa Time. U.S. West Texas Intermediate (WTI) crude futures edged lower by 49 cents or 1.22% to $39.78.

Brent recorded a fourth month of gains in July and WTI reported a third as both jumped from depths toughed in April, when the greater part of the world was in lockdown because of the coronavirus outbreak

Bonny Light, Nigeria’s premium crude offering, advanced by 61 cents or 1.43% on Thursday, closing at $43.23 per barrel. But Qua Iboe, another major oil grade, lost 32 cents or 0.73% to close at $43.66 at the last session.

‘Investors are worried about oversupply as OPEC+ is due to start reducing production cuts this month and a recovery in oil prices from record lows is likely to encourage U.S. shale producers to ramp up output,’ Hiroyuki Kikukawa, General Manager of Research at Nissan Securities said.

‘Also, fears over a resurgence in the coronavirus cases are weighing on oil markets,’ he added.

Output by OPEC climbed by more than a million barrels a day in July as Saudi Arabia and other Gulf members ended their voluntary additional supply reduction on top of an OPEC-led deal.

Russia’s oil supply in July was commensurate with June levels, said the nation’s Energy Ministry on Sunday.

OPEC+, a grouping of OPEC and allies including Russia, is set to ramp up output in August, adding around 1.5 million bpd to global supply.

U.S energy firms maintained the number of oil and gas at an unprecedented low as the rig count declined for a fifth consecutive month even though July marked the smallest monthly fall of the five.

Oil prices are bound to see a sluggish climb this year as the measured easing of coronavirus-led curbs spurs demand even though a new virus wave could slow the pace of recovery, a Reuters poll revealed Friday.

Australian city, Victoria, announced a ‘state of emergency’ on Sunday while authorities in the Philippines said they would reintroduce restrictions in capital Manila this week, showing global fears about reining in the pandemic.

Read also: Oil prices rally from 3-week lows although headwinds cloud outlook, Bonny Light adds 61 cents

‘Adding to matters is that the U.S. consumer market is entering the last few weeks of peak driving season and with mobility tracking data flatlining,’ said Stephen Innes, Chief Global Market Strategist at AxiCorp in a report.

‘Unless there is a significant drop in the COVID-19 case count curve that is sufficient enough to reduce consumer fear … and shift mobility data higher, demand might not get much better from here on in,’ he added.

The prospect of an oil demand pullback increasingly noticeable as a second round of infections manifests across the globe.

“Despite the resilient and range-bound nature of oil pricing over recent weeks, plateauing global demand and increasing OPEC+ output raises the question of whether the market can absorb additional barrels,” RBC Capital Markets said in a note.

OPEC+, a cartel of the Organisation of the Petroleum Exporting Countries (OPEC) and its Russia-led allies, plan between them to lift output from Saturday, enlarging world supply by 1.5 million barrels.

Worldwide economic outlook has gone bleak as an uptick in COVID-19 cases increases the likelihood of re-imposed lockdowns and makes rebound uncertain, according to Reuters polls of more than 500 economists around the world.

That was underscored by a report on Thursday that U.S. gross domestic product crumbled at a 32.9% annualised rate, the steepest fall in output since records started in 1947.

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