NEW YORK - Oil prices fell 2 percent to a one-week low 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 $1.50, or 2.0 percent, to settle at $74.68 a barrel, while US West Texas Intermediate (WTI) crude fell $1.14, or 1.5 percent, to settle at $72.91.
Those declines pushed both contracts out of overbought territory and were their lowest closes since June 18. Earlier in the volatile session, both benchmarks rose to their highest levels 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+ has increased supply by 2.1 million barrels per day (bpd) of oil from May to July after cutting supplies 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.
OPEC's forecasts point to an oil supply deficit in August and 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 15 percent 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 an oil price rally 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 US sanctions and more Iranian crude on the market. But tensions rose after US airstrikes on Sunday against Iran-backed militias in Iraq and Syria. Both Iraq and Syria condemned the unilateral US 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.