Oil prices took a turn for the worse in the US session as traders kicked any reopening optimism to the curb after California's Governor ordered indoor activities in restaurants, museums, bars, zoos and movie theaters to close statewide, reinforcing what the drop in mobility data was telling us all along: the fear of the virus will intensify again.
The Cali lockdown is serving as a stark reminder of the growing laundry list that still lingers, but for oil markets the question is this: will OPEC take notice?
Speculation on the OPEC+ strategy ahead of OPEC's Joint Ministerial Monitoring Committee meeting this Wednesday could make for an exciting 24 hours. Existing plans call for OPEC+ cuts to taper in August after a one-month extension. While Russia has already indicated it expects to increase production in line with the agreement, there’s the possibility that uncertainty around demand as a result of rising coronavirus infections will lead to another extension of the deepest initial phase of cuts.
Traders don’t expect the outcome to be hugely significant for oil either way. The most critical deliverable for OPEC+ is the continued demonstration of unity within the group. The oil market won’t get too bent out of shape if OPEC tweaks production to fit macro circumstances as needed, but the group must avoid any hint of discord.
With the California soft lockdown now framing the picture, July could be an even more challenging month for oil than expected. With even more demand woes emanating from coronavirus-linked uncertainty, it will be especially necessary for OPEC+ to present a centralized front while addressing these and other issues that may pop up.
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