Oil futures: Prices drop 3% to under $73/b on growth concerns, higher OPEC output  

2 Aug 2021

Quantum Commodity Intelligence – Crude oil futures in afternoon European trading hours Monday slipped by around 3% on concerns over a slowdown in Chinese growth and amid weaker than expected US manufacturer data, higher oil production, and ongoing concerns over the Covid-19 Delta variant.

Front-month October ICE Brent futures were trading at $72.95/barrel (1523 GMT), compared to Friday’s settle of $75.41/b.

At the same time, September NYMEX WTI was trading $71.02/b, versus Friday’s settle of $73.95/b.

US Manufacturing PMI was recorded at 59.5 for July, still growing but at a slower rate than an expected 60.9.

China’s factory activity growth slipped sharply in July as demand contracted for the first time in over a year, in part on high raw material prices, a business survey showed on Monday, underscoring challenges facing the world’s manufacturing hub.

Spot oil demand from China slowed last month following a government clampdown on the so-called ‘teapot’ sector, which included slashing import quotas for the rest of the year.

Meanwhile, a Reuters survey found that oil output from OPEC producers rose in July to the highest since April 2020, as the producer group continues to ease curbs, while Saudi Arabia has fully phased out a voluntary supply cut.

“According to Reuters, (OPEC) daily production increased by 610,000 barrels month-on-month in July – and according to Bloomberg by only 490,000 barrels. An increase of a good 700,000 barrels had been anticipated,” said Commerzbank in an investor note. 

The July OPEC+ agreement will add a total of 2 million bpd of oil between August and December, in increments of 400,000 bpd/month. 

The Covid-19 Delta variant, while yet to land a significant blow against the demand recovery, nevertheless remains a concern.

Restrictions continue across parts of the Asia-Pacific region, severely reducing travel to popular holiday destinations such as Thailand, while parts of Australia have been placed under full lockdown.

Meanwhile, funds raced back into Brent oil futures last week to reverse the sell-off mid-July, but were less bullish about WTI, data from the Commitment of Traders Report (CFTC) for NYMEX and ICE showed.

Money managers added almost 19,000 long lots and cut just over 18,250 short lots in Brent futures on the ICE exchange over the week to July 27.

Funds only added 9,400 long lots in WTI futures, compared to the 41,200 cut the previous week, and added another 12,150 short lots to add to the 7,350 gain the previous week.