Crude futures regain all of the losses from early-week plunge

Oil futures continued to climb July 22 on renewed optimism concerning demand growth, recovering all the losses from earlier in the week — and a few cents more — following the biggest single-day price drop in 2021.

Front-month NYMEX WTI gained $1.61 and settled at $71.91/b, while ICE September Brent picked up $1.56 to settle at $73.79/b.

In refined products, NYMEX front-month RBOB added 5.65 cents to settle at $2.2732/gal, while ULSD rose by 4.56 cents to $2.1326/gal.

NYMEX front-month crude futures were up well more than $5/b since July 19, when prices tumbled $5.39/b primarily on concerns of rising production and fears that the spread of the COVID-19 delta variant would hamper global economic recovery.

"Crude prices are climbing higher as traders continue to believe that the short-term delta variant jitters won't change this market away from a deficit anytime soon," said Edward Moya, senior market analyst for OANDA.

Moya noted oilfield services company Baker Hughes' July 21 projection that US shale drilling growth should slow down -- but continue an upward trajectory -- in the back half of the year as publicly traded producers maintain a focus on fiscal restraint for now.

"US shale drilling appears poised to decline for the rest of the year and that should keep OPEC+ content in gradually raising output," he added. "WTI crude appears poised to consolidate between the $70 and $75 level in the short term."

Crude and refined products futures climbed July 22 even as equities edged lower following higher-than-expected US unemployment figures. According to the US Labor Department, US jobless claims climbed to 419,000 the week ended July 17, up from the prior week's 368,000 figure, which itself was adjusted higher.

But that was down from roughly 1.4 million jobless claims the same week in 2020, Labor Department data showed.

Earnings show optimism

Industry earnings calls this week showed some optimism for petroleum demand growth and continued signs of austerity from US producers.

United Airlines said July 21 that it sees domestic leisure and business air travel demand recovering faster than hoped. And when international borders reopen, United expects to see the "same robust hockey-stick increase in demand" seen domestically as vaccinations increase across the globe, the company said on its earnings call.

Oilfield services provider Halliburton said July 20 that it still expects healthy second-half 2021 activity as recovery from the coronavirus pandemic continues unevenly. The market should be able to comfortably accommodate both increasing levels of OPEC+ crude output and new US shale barrels, the company said. Estimated US production is at its highest level of the year at 11.4 million b/d.

Longer-term, "We believe that we are in the early innings of a multiyear upcycle," Halliburton CEO Jeff Miller said. "For the first time in seven years, we anticipate simultaneous growth in international and North America markets."

Oil producers and refiners will begin to report second-quarter earnings next week, offering more insight into supply and demand expectations.

Crack spreads stable

The bulls can point to stability in refined products crack spreads, which held up relatively well during the July 19 selloff, reflecting some optimism on the gasoline and diesel demand front.

The NYMEX front-month RBOB crack spread against ICE Brent was trading around $20.81/b midday July 22, up from $19.17/b July 19, while the ULSD crack was trading around $15.80/b, up from $14.83/b.

And while US crude inventories climbed 2.1 million barrels last week, following eight consecutive weeks of declines, stocks at the WTI delivery and pricing point of Cushing, Oklahoma, have fallen roughly 22 million barrels since early January, according to US Energy Information Administration data.

With refined products crack spreads and margins holding up, refiners have little incentive to cut runs, which should help to tighten inventories.

Barclays analysts said in a report that "current inventory trends justify a $100/b price of oil" considering that US crude supply has become less elastic.

However, "There is still significant spare capacity with OPEC+ and, while the group would obviously benefit from not increasing output fast enough, we doubt it would view such a scenario as optimum given demand and political considerations," the analysts said.