Crude oil futures fell 3%, a new bearish brewing

Spark Global Limited reports:

Oil prices on Monday extended last week’s sharp declines, with Brent and WTI crude futures both down 3 per cent in early European trading to their lowest levels since July 20.

 

RBC analyst Gordon Ramsay said in a note that concerns about a possible erosion of global oil demand have reappeared as the rate of infection of the Delta mutant virus has accelerated.

Sheridan, an analyst at financial website Forexlive, added that this week, the European Union will meet to examine which countries are allowed to enter for non-essential travel. According to multiple sources, the EU may reconsider adding the U.S. to the list of countries it will allow entry to, given the worsening outbreak and slowing vaccinations in the U.S. Less travel will weigh on oil demand, and the decline in the oil market is a sign of that concern.

What’s more, while “Delta” is raging, “Ramda” may become the new king of poison. A new study suggests that a mutant strain of Ramda, now rapidly spreading through South America, is highly contagious and more resistant to vaccines than the original. According to the current trend of transmission, Ramda is likely to replace Delta as the dominant strain in the next phase of the global epidemic.

A stronger dollar has also reduced the appeal of raw materials such as oil and gold. The dollar briefly jumped after a strong U.S. jobs report on Friday sparked bets that the Federal Reserve might start easing its stimulus measures.

 

Oil bulls fled sharply last week, with a U.S. Commodity Futures Trading Commission report showing speculative net long positions in WTI crude futures fell 18,368 lots to 305,378 lots in the week ended August 3. ICE also reported a reduction in speculative net long positions in Brent crude oil futures from 1,994 lots to 309,665 lots last week.

As the EIA, IEA and Opec release their monthly oil market reports this week, watch for changes in the language they use to describe the outlook for the oil market.

On the supply side, Opec + will increase by 400,000 barrels a month from August, and many investment banks are optimistic that the market will be able to absorb the extra supply. Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group, said:

“Oil seems to be affected by the broader movement of commodity markets. “Indicators show that demand in key markets like the U.S. and Europe is still strong and I don’t think this sell-off will last long.”