The past few days have been rough and rocky for oil prices.

Since the start of August, both WTI Crude and Brent have shed over 4% as the highly infectious Delta variant spread its poisonous tentacles across Asia. Concerns remain elevated over the Delta menace resulting in tougher travel restrictions across infected regions, resulting in lower fuel demand. It must be kept in mind that it is not only Asia dealing with the variant, but Europe and the United States. A real concern to investors is the fact that cases are surging in oil-consuming titans, which certainly does not bode well for the demand outlook.

More volatility ahead for oil markets?

Watch this space as oil could turn volatile this week due to Delta fears and the monthly oil market report from not only the International Energy Agency (IEA) but OPEC.

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On Thursday, much attention will be directed towards OPEC’s monthly report which includes the cartel’s output numbers for July. Its outlook on the global market and projections on world oil demand will be closely scrutinized by investors, especially after fears over the Delta variant have exposed oil prices to downside risks.

If both the IEA and OPEC express optimism over the demand outlook, this could offer oil bulls a lifeline. However, any concerns raised around the Delta variant and downgrades to oil demand forecasts could drag the commodity lower.

Worth keeping a close eye on China 

Coronavirus cases in the world’s second-largest economy have jumped to a seven-month high.

China has increased travel restrictions in recent days in an effort to curb the rising cases. Such a development has impacted transport activity with road traffic in affected cities falling. When considering how China is the world’s second-largest oil consumer, this is bad news for the commodity. More negative developments on the Covid-19 front in China are likely to weigh on oil prices moving forward.

What about OPEC+ production increase?

Compounding oil’s woes is the fact that from August, OPEC+ will increase production by 400,000 barrels a day.

This is quite ironic given the drama witnessed before a compromise was reached to hike oil output. With the latest Delta variant outbursts clouding the demand outlook for oil, the cartel will be paying very close attention to the Covid-19 developments. If demand growth is negatively impacted, OPEC+ may be forced to re-evaluate its current plan to gradually release more oil production into markets.

Technicals look choppy but bears in vicinity 

Taking a look at the technical picture, Brent crude remains under pressure on the daily charts. There have been some sharp rebounds, but the longer-term trend is starting to swing in favour of bears. Prices are trading just above the 100-day Simple Moving Average but the MACD resides below zero. Sustained weakness below the $72-$73 levels may encourage a decline back towards $67.00. A solid breakout above $73 could open a path back towards $76.

Ultimately, where oil prices conclude this week is likely to be influenced by the pending OPEC and IEA monthly reports.

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