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Futures Movers: Oil ends slightly lower on bets that India’s COVID dilemma may lead OPEC+ to postpone output hike

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Oil futures fell on Monday to extend overall losses from last week, but prices settled above the session’s worst levels.

Some analysts expect India’s rise in COVID-19 cases to potentially lead to significant declines in energy demand, but that may also prompt major oil producers to postpone planned production increases when they meet later this week.

The Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, held a technical meeting Monday to review the oil markets, ahead of a key OPEC+ meeting Wednesday. OPEC Secretary-General Mohammad Barkindo highlighted an improving oil market outlook but also emphasized that there are many factors that require ongoing monitoring and vigilance.

The committee on Monday kept their oil demand forecast unchanged, but acknowledged that India was a growing risk to global demand recovery, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

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.

However, given the potential loss in Indian oil demand, OPEC+ “will err on the side of caution as they decide on when to bring on more output” and they may actually “adjust production downward if they view India as a growing threat to demand,” said Flynn. At a meeting in early April, OPEC+ had agreed to gradually boost oil production over a three-month period starting in May.


OPEC+ ‘will err on the side of caution as they decide on when to bring on more output’ and they may ‘actually adjust production downward if they view India as a growing threat to demand.’


— Phil Flynn, The Price Futures Group

Against that backdrop, oil prices pared earlier declines. West Texas Intermediate crude for June delivery
CL00,
-0.29%

CLM21,
-0.29%

fell 23 cents, or 0.4%, to settle at $61.91 a barrel on the New York Mercantile Exchange after tapping an intraday low at $60.66. June Brent crude
BRNM21,
+0.11%
,
the global benchmark, lost 46 cents, or 0.7%, at $65.65 a barrel on ICE Futures Europe, following earlier lows well under $65.

In a note Monday, analysts at RBC Markets said it is “more likely” that OPEC+ will “continue with the gradual output increases and pledge to remain ever vigilant and ready to respond to changing market conditions” when it meets on Wednesday,

However, “given COVID concerns in India, the world’s third largest oil demand center, we do not entirely rule out that they could take a temporary pause on planned production increases to assess the situation,” they said.

Meanwhile, the number of daily cases in India has hit a record of almost 350,000.

The government has not imposed a national lockdown and instead, opted for 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.

Read: COVID-19 crisis deepens in India as the U.S. and others pledge help

Bloomberg reported that Indian Oil Corp. is looking to sell gasoline into the spot market, which may indicate weak domestic demand.

OPEC+ officials this week 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.

Read: Here are the biggest risks to oil’s rally

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.

Related: Here’s how fast Iran could boost oil output after agreement on nuclear deal

For now, “the rampant spread of COVID-19 in India, continued delays in vaccine rollout in Europe, and fears regarding the potential for a deal with Iran, all are likely to keep prices down,” said Price Futures Group’s Flynn.

Back on Nymex, May gasoline
RBK21,
-0.85%

fell 0.9% at $1.98 a gallon, but May heating oil
HOK21,
+0.31%

tacked on 0.3% to $1.88 a gallon.

May natural gas
NGK21,
+2.34%

rose 2.2% to $2.79 per million British thermal units.

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