WASHINGTON (DTN) -- With the Delta variant of coronavirus prompting renewed travel and business restrictions across industrialized and developing economies, oil futures contracts on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange plummeted more than 7% Monday as traders grappled with prospects of a delayed recovery in global oil demand and additional supplies from the Organization of the Petroleum Exporting Countries and partners outside the cartel after the coalition agreed to gradually unwind quotas through the end of 2022.
Adding further selling pressure, the U.S. dollar surged 0.22% against a basket of foreign currencies to a 3 1/2-month high 92.900 settlement, as investors fled to safe-haven assets amid signs of a derailed global recovery. Renewed COVID shutdowns have gained traction in parts of Asia and Europe, where inadequate vaccination campaigns failed to stop the community spread of more contagious COVID variants. The European Center of Disease Control estimates by the end of August the Delta variant will represent 90% of all SARS-CoV-2 viruses circulating in the European Union. Domestically, the number of daily COVID-19 infections jumped 66% from the previous week to 32,278 as of Sunday, which is 145% higher than the rate two weeks ago. Director of the National Institute of Allergy and Infectious Diseases, Dr. Anthony Fauci, pleaded with Americans to get vaccinated, warning the Delta variant is becoming more dominant each day.
Faced with a resurgent virus, governments from France to Australia beefed up restrictions on businesses and international travel, buying more time for their citizens to jet the vaccine.
The U.K. government announced on Friday that fully vaccinated travelers arriving from France must continue to quarantine because of the threat posed by the Beta variant -- first discovered in South Africa four months ago. In France, President Emmanuel Macron slapped quarantine restrictions on nonvaccinated citizens, prohibiting entrance to public transport, bars, and restaurants without a vaccination card or negative COVID test. Greece has also imposed similar restrictions for bars and theaters.
Against these headwinds, OPEC+ on Sunday moved to gradually unwind the remainder of 5.8 million barrels per day (bpd) in production cuts, bring back 400,000 bpd a month until all output cut in April 2020, a total of 9.7 million bpd, is brought back online in late 2022. OPEC+ also extended its agreement through the end of 2022 from its previous expiration of April 2022.
Under the new deal, five members to the agreement will receive a boost to their production baseline but not until May 2022. Saudi Arabia and Russia will have a new OPEC+ baseline of 11.5 million bpd, up 500,000 bpd from the current 11 million bpd. Iraq and Kuwait's production baselines were also increased by 150,000 bpd each to 4.803 million bpd and 2.959 million bpd, respectively. The United Arab Emirates, which blocked a deal earlier this month on grounds their production baseline was outdated, got a boost of 332,000 bpd from the current 3.168 million bpd, 300,000 bpd less than the country's requested increase to 3.8 million bpd. Collectively, OPEC+ will upgrade their baseline from which it references their cuts by 1.63 million bpd.
"Consensus building is an art," Saudi Energy Minister Prince Abdelaziz bin Salman told reporters after the meeting. "The deal is evidence of the strong bonds between members and shows that OPEC+ is here to stay."
UAE Energy Minister Suhail al-Mazrouei reassured investors the Emirates remain committed to OPEC+ alliance, adding, "We will always work within this group to do our best to achieve market balance and help everyone."
On the session, the NYMEX August West Texas Intermediate contract plummeted $5.39 or 7.6% to $66.42 barrel (bbl) ahead of expiration Tuesday afternoon, with the September contract settling near parity, $66.35 bbl, with the expiring contract. The international crude benchmark Brent contract for September delivery slumped $4.97 to $68.62 bbl. NYMEX August ULSD futures dropped 12.81 cents to settle at $1.9852 gallon, and the front-month NYMEX RBOB contact tumbling 14.32 cents for a $2.1104 gallon settlement.
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