Oil prices dropped sharply on Monday as investors digested news of more supply coming to the market and fretted about rising COVID-19 cases around the world.
The slump came after oil producing nations announced they would ramp up supply in light of the recent global economic rebound that has accompanies reopening.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, on Sunday said they would increase production by 400,000 barrels per day each month until supply was back to normal. The OPEC+ group agreed to cut supply by 5.8 million barrels per day last year in the face of slumping demand and prices. At the current pace of expansion, supply would normalise by the end of next year.
The agreement resolves a reported conflict within OPEC+ between Saudi Arabia and the UAE over how much to pump. Earlier this month an OPEC+ meeting broke down after the two sides failed to agree on supply increases.
"The outcome of the arrangement would mean a surge in the supply of oil after oil prices reached their highest in nearly 3 years because of rising demand and production cuts," said Naeem Aslam, chief market analyst at Avatrade.
"However, traders should keep in mind that the slow pace of production growth indicates that producers are comfortable with current oil prices and are likely concerned about the pace of economic recovery as new coronavirus variants emerge."
Neil Wilson, chief market analyst at Markets.com, said concerns about rising cases of the Delta variant of COVID-19 globally was also hitting oil prices on Monday.
"The broad risk off tone in the market amid concerns of variants, rising cases and declining vaccine efficacy is also contributing to the soft price action this morning for oil," he said.
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