Traders are getting more cautious ahead of the OPEC+ meeting due on Wednesday
Oil prices edged lower on Monday as Brent crude failed to challenge the $72.40 area to finish just above the $72 figure. Today, the futures tried to resume the ascent but attracted the selling pressure to extend losses to $71.40 earlier in the day.
Interestingly, Brent crude struggles to see more gains despite a weaker dollar. On the negative side, weaker-than-expected Chinese PMIs fueled worries about energy demand out of the second-largest economy.
Also, hurricane Ida knocked nearly all of the oil production in the Gulf of Mexico region, but the prices failed to capitalize on the disruption as it’s likely that the long-term damage to Gulf region production will be limited. Of note, Ida weakened to a tropical storm on Monday, adding to downside pressure in the market. Also, there is a technical reason behind the current dynamics in oil prices as the futures rallied over 11% last week and see corrective moves now.
Furthermore, traders are getting more cautious ahead of the OPEC+ meeting due on Wednesday. The producers meet to discuss a scheduled 400,000-bpd increase in their oil output. Over the weekend, Kuwait’s oil minister said the increase in output could be reconsidered. As such, there is some uncertainty ahead of the event, capping potential gains in the market for the time being.
From a wider perspective, the outlook for oil prices will continue to depend on the pandemic. The ongoing spread of the delta virus in Asia and other regions would further cap positive momentum in the market in the medium term. Also, further rise in US crude oil production along with an increase in output by OPEC+ countries could add to a less upbeat tone in the market.