Crude oil futures extend gains after overnight vault as outlook improves

Crude oil futures were higher in mid-morning trade in Asia Aug. 24, after surging by more than 5% overnight, as falling COVID-19 cases in China and expectations of a delay in tapering monetary support in the US continued to fuel a risk-on rally.

At 9:50 am Singapore time (0150 GMT), the ICE October Brent futures contract was up 40 cents/b (0.58%) from the previous close at $69.15/b, while the NYMEX October light sweet crude contract was 32 cents/b (0.49%) higher at $65.96/b.

Both oil benchmarks settled 5.3%-5.4% higher overnight after a spate of bullish reports spurred a rally across asset classes, with several US equity indices closing at or near record highs.

Investors were cheered by news that China reported zero locally transmitted COVID-19 cases Aug. 22, a sign that the government has been successful in beating back the latest outbreak.

The US Food and Drug Administration Aug. 23 also granted full approval to the Pfizer-BioNTech vaccine, a move that will likely speed up the pace of vaccinations across the country.

In addition, preliminary US services and manufacturing PMI data for August released Aug. 23 came in short of expectations, lending support to the notion that the US Federal Reserve will hold back from tapering its massive asset-purchase program in the coming months.

"Global risk markets started the week on a high note, supported by growing expectations that decelerating global business activity will act as a restraint on central bank intentions to start dialing back monetary accommodation in the near term," ANZ Research analysts in an Aug. 24 note.

IG DailyFX Strategist Margaret Yang said the NYMEX contract will likely meet resistance around the $66.15/b level, a marker that previously served as a floor to prices over July 19-21 and Aug. 9-10.

Nonetheless, the outlook for crude oil has improved, analysts noted, as US crude oil stockpiles continue to shrink and multiple countries work to keep the spread of the delta variant under control.

Total US commercial crude oil inventories were expected to have declined 3.2 million barrels on the week to around 432.3 million barrels, analysts surveyed by S&P Global Platts said Aug. 23. The draw would leave stockpiles at the lowest since the week ended Jan. 24, 2020 and put them around 5.9% behind the five-year average of US Energy Information Administration data, the narrowest deficit to the average since mid-June.

The draw also comes amid an expected rebound in US refinery demand.

"WTI crude prices should be supported going forward as the selloff was overdone and as stockpiles continue to shrink. Oil prices could quickly rally back to $70 if the Fed does not send the dollar higher by formally committing to tapering its asset purchases," OANDA senior market analyst Edward Moya said.