Crude surges 5% on weaker dollar, easing COVID-19 concerns

Crude oil futures settled sharply higher Aug. 23 amid signs of progress against the COVID-19 delta variant surge and a weaker US dollar.

NYMEX October WTI climbed $3.50 to $65.64/b and ICE October Brent moved up $3.57 to $68.75/b, a respective increase of 5.3% and 5.4% from Aug. 20.

"Crude prices roared back after the Pfizer COVID vaccine got full FDA approval, opening the door for more vaccine mandates which will help get the US to herd immunity. The crude demand outlook will get a boost here now that the delta variant appears to be peaking in the South and as China lowers local COVID cases to zero," OANDA senior market analyst Ed Moya said in a note.

The US Food and Drug Administration on Aug. 23 issued full approval for the Pfizer-BioNTech's coronavirus vaccine for individuals 16 and older, paving the way for more expansive vaccine mandates. In the hours after the approval several states, including New York and New Jersey, issued new guidance mandating vaccines for school employees.

NYMEX September RBOB settled 9.96 cents higher at $2.1232/gal and September ULSD was up 9.69 cents at $2.0051/gal.

Meanwhile, China's National Health Commission on Aug. 23 reported zero new locally-transmitted COVID-19 infections for the first time since July, suggesting that the country's implementation of strict limitations on mobility and other social restrictions may have turned the tide on the delta variant surge.

The cost of China's so-called zero COVID-19 policy on the nation's energy demand will likely be realized in coming weeks, analyst said.

"The coming weeks will reveal whether the travel restrictions that have been imposed in China and other Asia-Pacific countries will really have such an impact on fuel demand as last week's price performance suggests. What is more, the example of India shows just how quickly demand recovers once the restrictions are lifted. The key question therefore is how long the restrictions will remain in place. In this sense it is a good sign that there were apparently no new cases recorded over the weekend in China," said Commerzbank energy analyst Carsten Fritsch in an Aug. 23 note.

But despite these signs of progress in the global fight against the pandemic, the spread of the delta variant outside of Asia still presented significant uncertainty for markets, analysts said.

The US recorded 157,450 new cases and 1,120 deaths on Aug. 22, according to the Centers for Disease Control and Prevention. Hospitalization rates also remain an issue, with Alabama reporting more patients in ICUs than the available beds, while other states like Florida and Texas are seeing the ICU capacity at over 90%, according to media reports.

"Despite today's positive gains, the downtrend for oil prices remain intact, having recently formed a lower low. I believe we may have to see a peak in global COVID-19 cases in order for oil prices to see a more sustained rebound, as mobility currently still seems to be under pressure," IG market strategist Yeap Jun Rong told S&P Global Platts.

A weaker dollar added further upward pressure on crude prices. The ICE US Dollar Index was down around half a point in afternoon trading at 92.97.

Investors will be looking to the Jackson Hole Symposium, due to start Aug. 26, for clearer signals regarding the US Federal Reserve's pace of tapering for its bond buying program. Reports surfaced last week indicating that the Fed will be looking to taper its bond purchasing from as early as September. This could result in an uptick in interest rates, adding downward pressure on energy demand.