Oil prices seek direction in advance of OPEC meeting this week

(Bloomberg) --Oil erased earlier losses with the market looking for its next direction from an OPEC+ meeting this week and the spread of the delta variant of Covid-19.

Futures in New York edged higher, topping $73 a barrel. The infectious variant has resulted in a spike in UK cases and is taking a toll on mobility in some parts of Asia. While the crude market has tightened, the latest flare-up could play a part when OPEC+ gathers Thursday to decide on output levels in August.

Elsewhere, key regions including the U.S. and China are rebounding from the virus, while India’s biggest refiner is boosting fuel production. The bullish backwardation in some futures markets has eased so far this week, though that’s likely a softening ahead of expiry at the end of the month, rather than an indicator of a bigger correction to come.

“In order to keep prices at current levels where oil prices do not inhibit the economic recovery, the world requires more supply,” said Kevin Solomon, an analyst at brokerage StoneX Group Inc. “From a global perspective, there are seemingly growing concerns over the increase in the Covid-19 delta variant.”

Prices:

• West Texas Intermediate for August added 0.5% to $73.26 a barrel by 8:33 a.m. New York time
• Brent for August settlement was 0.4% higher at $75.01
• The prompt timespread for Brent was 54 cents in backwardation, compared with 73 cents a week earlier

The U.K. on Monday reported the most new Covid-19 cases since January, and Hong Kong, Spain and Portugal all imposed new restrictions for visitors from the nation. Authorities are also racing to contain outbreaks in Australia. The resurgence may lead to export-focused refiners in Asia trimming processing rates.

Meanwhile, OPEC+ expects that the market will remain in deficit this year if it keeps production steady, according to data that technical experts will review on Tuesday ahead of the coalition’s main meeting later in the week. The group may boost daily output by 500,000 to 1 million barrels a day, RBC Capital Markets said in a note.

Other market news:

• Indian pump prices are in uncharted territory as ever-increasing government levies coincide with crude’s recovery from the depths of the Covid-19 pandemic.
• The physical oil market, in which millions of barrels of crude are bought and sold each day, is screaming for more supply.