On Monday, July 19, investors entered risk aversion mode due to widespread market suspicion that the outbreak of the new crown Delta variant virus will slow the momentum of the global economic recovery.
European and U.S. stock indexes plunged, the Dow fell more than 900 points in the afternoon, 10-year U.S. bond yields leaked more than 12 basis points, as risk assets and economic recovery front-runner international oil prices are also difficult to be spared, have fallen below the key psychological integer level.
U.S. oil WTI September futures contract fell as deep as $6.81 or 9.5% during the day to a daily low of $65.75, the largest single-day decline in at least a year, and the first time in more than a month to fall below the $70 round figure.
The U.S. oil August contract will expire on Tuesday, the same trend as the September contract, have completely retracted the nearly two months of gains since the end of May, today is a succession of six integer hurdles below $71-66.
The international Brent September contract fell $5.41 or 7.4% during the day to a daily low of $68.18, forcing the $68 integer level, a new low of nearly two months, and falling below the $73-69 five integer levels one after another during the day.
Finally, WTI August crude oil futures closed down $5.39, or 7.50%, at $66.42/barrel. Brent September crude oil futures closed down $4.97, or 6.75%, at $68.62/barrel.
Dow Jones market data showed that WTI immediate-month futures posted the biggest one-day percentage drop since Sept. 8 last year and closed at the lowest since May 28 this year, while Brent oil posted the biggest one-day percentage drop since March this year, as well as the lowest close since May 24.
Two hours from the close, the Dow and the S&P 500 both fell more than 2%, the Nasdaq fell 1.5%, oil prices plunged dragging energy stocks deep down 4.5%, becoming the worst performing sector in the S&P broad market. Occidental Petroleum, Marathon Petroleum, oil service provider Schlumberger were once down more than 6%, Exxon Mobil and ConocoPhillips fell more than 4%, Chevron Petroleum fell more than 3%.
Analysis points out that the main driver of today’s oil price plunge is the market’s concern that the Delta variant virus will derail the rebound in oil demand. Because in the oil price dive at the same time, the stock market, industrial metals and U.S. bond yields are in parallel sharply lower, reflecting the high demand for risk aversion.
Previously, investors were betting that oil demand would “surge” this year and boost oil prices as more consumers get vaccinated and return to normal travel patterns. But under pressure from the resurgence of the new epidemic, some have been forced to lower their expectations for an economic recovery, and traders are worried about a renewed international travel ban, “which will have a huge impact on oil prices.
Rebecca Babin, senior energy trader at CIBC Private Wealth, also told the Wall Street Journal that if the economy stagnates or retracts some of the demand growth seen so far, “the market will quickly turn from the current state of undersupply to oversupply in the second half of the year.
According to Monday’s daily low, U.S. oil WTI has fallen more than $11 or nearly 15% from the six-year high of $76.98 set on July 6, entering a technical “retracement” range (correction), if from this stage of the high fell more than 20% on behalf of technical bear market.
However, WTI is still up about 38% so far this year, and Bumiputra has maintained a gain of over 30%, which can be very impressive. Goldman Sachs, Credit Suisse and RBC analysts are of the view that yesterday’s agreement to increase production by 400,000 barrels per day per month since August, led by Saudi Arabia and Russia’s OPEC+ coalition of oil producers, “constructive for oil prices”, as the increase in production is smaller than the growth in demand, oil prices are expected to continue to move upward in the short term.
Credit Suisse will this year’s average price of cloth oil is expected to increase from $ 66.50 to $ 70 / barrel, the average price of WTI this year is expected to increase from $ 62 to $ 67 / barrel. Citi also believes that this year’s cloth oil and WTI will climb to $85 or higher, the reason is that in the short term oil demand growth exceeds supply growth, is expected to be suppressed leisure travel demand release make oil market more tight summer than in previous years, and thus boost oil prices.
However, some analysts say that the Delta variant of the virus is a major uncertain variable that does not rule out changing OPEC+’s plan to gradually increase production. Goldman Sachs also acknowledged that even if oil prices move upward overall in the short term, news of the new crown outbreak could lead to price volatility in the coming weeks.