Crude ticks lower on profit-taking, demand sentiment improves

0245 GMT: Crude oil ticked lower during the mid-morning trade in Asia July 23 on profit-taking activity, following a recent rally that saw futures prices claw back losses from a selloff at the start of the week.

At 10:45 am Singapore time (0245 GMT), the ICE September Brent futures contract was down 23 cents/b (0.31%) from the previous close at $73.56/b, while the NYMEX September light sweet crude contract was down 23 cents/b (0.32%) at $71.68/b.

The downtick in prices during the morning trade comes as the market cools off after a rally that saw the front-month ICE Brent and NYMEX light sweet crude markers rising roughly 8% over July 20-22, paring back losses from a selloff that saw both markers plummet at the beginning of the week on July 19.

Despite the slight fall in prices, analysts remain optimistic that the oil market is in the middle of a recovery.

Concerns over the spread of the highly transmissible delta variant of the coronavirus have taken a backseat, supplanted by optimism over rising oil demand as the world fuels its economic recovery.

The Energy Information Administration report, released late July 21, showed implied downstream oil products demand rising 6.62% on the week to 20.6 million b/d in the week ended July 16.

This trend is also seen in Europe, where road activity and air travel are both on the rise.

"Europe saw a 6% rise in traffic over the past two weeks, with flights now 2/3 of the number seen in 2019," ANZ analysts said in a July 23 note.

As the rising demand trend defies the surge in COVID-19 infections, there are now concerns that supply may not be able to keep up.

The OPEC+ coalition had, on July 18, reached a deal to increase its production quotas by 400,000 b/d each month starting in August, amounting to a 2 million b/d total increase by the end of the year, with the production rises also expected to continue next year.

However, with the supply-side response from US shale producers likely to remain conservative, as highlighted by oil services provider Baker Hughes in its second-quarter earnings call, there are concerns in the market that the OPEC+ output increase may fall short of the amount needed to balance the market.

"With demand holding up, the market is starting to sense the 400,000 b/d increase in OPEC will not be enough to keep the market balanced...The US is unlikely to fill the gap, with the US shale industry continuing to show signs of austerity," ANZ analysts said.