NEW YORK: Oil prices fell nearly 2per cent on Monday after hitting their highest since 2018 earlier in the session, as a spike in COVID-19 cases in Asia and Europe put a brake on the rally before this week's OPEC+ meeting.
Brent futures fell US$1.33, or 1.8per cent, to US$74.85 a barrel by 12:44 p.m. EDT (1644 GMT), while U.S. West Texas Intermediate (WTI) crude fell US$1.06, or 1.4per cent, to US$72.99.
Those declines pushed both contracts out of overbought territory. Earlier in the volatile session, both benchmarks rose to their highest since October 2018.
"The forecast for oil demand recovery over the summer may be a bit overestimated, and traders are facing a reality check this week as the (COVID-19) Delta variant reached Europe and as an infections surge in Southeast Asia and Australia is bringing back lockdowns," said Louise Dickson, oil markets analyst at Rystad Energy.
Indonesia is battling record-high cases, Malaysia is set to extend a lockdown and Thailand has announced new restrictions.
Australia also reported on Sunday one of the highest numbers of locally acquired coronavirus cases this year, triggering lockdowns in some cities.
All eyes this week will be on the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, to see what happens at their meeting on Thursday.
OPEC+ was returning 2.1 million barrels per day (bpd) of oil supply to the market from May to July after cutting output during the pandemic, and could decide to add more barrels in August after crude prices last week rose for a fifth week in a row with recovering demand.
OPEC's forecasts point to an oil supply deficit in August and in the rest of 2021 as economies recover from the pandemic, suggesting OPEC+ has room to raise output.
Analysts at Australian bank ANZ and Dutch bank ING said they expect OPEC+ to increase output by about 500,000 bpd in August.
But in a move that surprised some market watchers, Abu Dhabi National Oil Co (ADNOC) will reduce the volume of crude it supplies to Asian term buyers by 15per cent in September, according to six sources with direct knowledge of the matter. It was not immediately clear why ADNOC would cut supplies.
And in Russia, oil production has declined so far in June from average levels in May despite a price rally in oil market and OPEC+ output cuts easing, two sources familiar with the data told Reuters on Monday.
Iran and the United States, meanwhile, were expected to resume indirect talks on reviving a 2015 pact over Tehran's nuclear work.
Agreement could lead to a lifting of U.S. sanctions and more Iranian crude on the market. But tensions rose after U.S. air strikes on Sunday against Iran-backed militias in Iraq and Syria. Both Iraq and Syria condemned the unilateral U.S. strikes as violations of their sovereignty.
Iran said on Monday it has yet to decide whether to extend a monitoring deal with the U.N. nuclear watchdog which lapsed last week.
(Additional reporting by Bozorgmehr Sharafedin in London and Florence Tan in Singapore; Editing by Marguerita Choy and Jonathan Oatis)