Crude oil climbs as demand outlook firm amid slowing virus spread, EU stimulus

Oil futures settled at four-month highs July 21 as positive COVID-19 vaccine news and the passage of a European stimulus package boosted demand outlooks.

NYMEX August WTI was up $1.15 at market close to settle at $41.96/b and ICE September Brent climbed $1.04 on the day to finish at $44.32/b.

Front-month ICE Brent last settled higher on March 6 while front-month WTI was strongest since March 5.

"Crude prices are surging after both EU leaders wrapped up a landmark rescue fund and as the US seems to be getting a handle of the coronavirus spread," OANDA senior market analyst Edward Moya said. "Oil is tentatively breaking out of its tight trading range, but still seems to lack a strong enough catalyst for WTI crude to break above the $45 level."

Oil prices climbed overnight after European Union leaders announced a Eur750 billion stimulus package aimed at offsetting the economic impact of the coronavirus crisis. The stimulus report came on the heels of reports on July 20 that a vaccine jointly developed by British drugmaker AstraZeneca and Oxford University has been shown to lower immune responses with minimal side effects.

While the positive headlines regarding vaccine treatments was bullish for forward demand outlooks, there are signs that the recent resurgence in COVID-19 has begun to fade.

The number of new COVID-19 infections reported daily in the US has steadily declined since a July 16 peak of nearly 76,000, according to New York Times data. On July 20, the seven-day moving average of new cases declined for the first time since early June. Worldwide, daily new infections has dropped for four consecutive days from a record high of 252,500 on July 16 to 214,600 on July 19, latest data from John Hopkins University showed.

Second-month WTI futures settled at a 4 cents/b premium to the front-month contract, marking the first time prompt month futures have been in backwardation since mid-May.

Energy prices were also supported by a weaker US dollar. Front-month ICE US Dollar Index futures fell to 95.145 in afternoon trading, the weakest since March 9. Oil prices and the US dollar are typically inversely correlated.

Refined product futures moved sharply higher on the day. NYMEX August RBOB settled 5.12 cents higher at $1.2797/gal and August ULSD was up 4.45 cents at $1.2800/gal.