OIL FUTURES: Crude rallies over 2% as market shrugs off pandemic concerns

Crude oil futures moved higher Aug. 10 as the market looked past demand slowdowns in Asia amid signs of continued growth in the US and Europe.

NYMEX September WTI settled up $1.81 at $68.29/b, and ICE October Brent climbed $1.59 to $70.63/b.

"Crude prices are rebounding as the rout that stemmed from delta variant concerns has run its course," OANDA senior market analyst Ed Moya said in a note. "The headlines for crude have been mostly constructive, but the primary driver has been the overall risk-on theme that stemmed from Senate's passing of the $1 trillion bipartisan infrastructure spending bill."

NYMEX September RBOB settled 3.31 cents higher at $2.2679/gal and September ULSD climbed 3.81 cents to $2.0802/gal.

The US Senate Aug. 10 passed the $1 trillion Infrastructure Investment and Jobs Act, which would provide $550 billion in new government spending to rebuild roads, bridges and other infrastructure, as well as fund climate and clean energy programs.

"Oil prices are coming back in pure turnaround Tuesday fashion on hopes that maybe, just maybe, the delta variant of the COVID-19 virus might not be as big a threat to global demand that traders feared just 24 hours ago," Price Futures Group analyst Phil Flynn said. "It looks like oil successfully defended the assault of $65/b looking more like a solid floor or the number for bears to beat if they are going to be successful in crashing oil further."

Front-month WTI dipped as low as $65.15/b in Aug. 9 trading, marking the lowest intraday level since May 24.

Sustained inventory pressure in the US and Europe offered indications that demand recovery narratives in the Atlantic basin remained intact despite the spread of the delta variant.

US crude oil inventory draws are expected to have resumed in the week ended Aug. 6, analysts surveyed by S&P Global Platts said Aug. 9, amid steady refined product demand. Meanwhile, gasoline inventories at the Amsterdam-Rotterdam-Antwerp last week fell to their lowest point since Oct. 27, 2016, as domestic Northwest European as well as particularly Mediterranean markets have seen extreme tightness.

But global demand outlooks remain clouded by concerns of rising coronavirus case numbers in Asia, especially in China, the world's second-largest crude importer, which is grappling with its worst outbreak since the emergence of the virus in late 2019.

"While most of China's population is vaccinated, officials are still tackling outbreaks with mass testing and targeted lockdowns. This is already weighing on mobility," ANZ Research analysts said in an Aug. 10 note.

The virus has affected 17 of China's 31 provinces, causing domestic airline seat capacity to drop 32% in a week.

Elsewhere, Southeast Asian economies such as Indonesia, Malaysia and Thailand have also been hit hard by a surge in case numbers, with average daily fatalities for the region tripling from 500 to 1,500 a day in July, according to media reports. In the US, prevailing travel restrictions have also caused air travel to plateau for nearly two months.

"With a more than 50% rise in oil prices since the start of the year, markets have been largely pricing in a smooth economic reopening. However, the near-term resurgences in virus cases from the Delta variant seem to put some risk into that narrative," Yeap Jun Rong, Market Strategist at IG, told S&P Global Platts.

"This may drive some market participants to take profit in the near term. The US$66.70 level for Brent crude may be one to watch, a break below this level may bring about a lower price low, potentially fueling further shift in sentiments to the downside," he added.

Rising oil supply from OPEC+, US oil producers and other sources will outpace global oil demand growth in 2022, the US Energy Information Administration said Aug. 10 in its latest Short-Term Energy Outlook.

The EIA cut its estimate for 2022 global oil demand growth by 100,000 b/d from last month's outlook, now predicting demand will increase by 3.6 million b/d from 2021 to 101.3 million b/d in 2022. That would put 2022 global oil demand above pre-pandemic levels for the first time, or 350,000 b/d above the 2019 average.

But the EIA left its 2021 global demand outlook unchanged at 97.63 million b/d, an increase of 5.3 million b/d from 2020.