Crude oil futures rebounded yesterday as market participants vied to take advantage of oil’s two-month low hit in the previous session.
Monday’s selloff, spurred by demand destruction fears amid rising COVID-19 cases, pushed oil about 7 per cent lower and hit other riskier assets. While equities avoided a new selloff yesterday, United States Treasury and German bond yields also slipped as a reminder that investors remained worried.
“There are bottom pickers trying to get into this dip,” said Bob Yawger, director of energy futures at Mizuho in New York.
Brent crude rose 50 cents, or 0.7 per cent, to $69.12 a barrel having slid by 6.8 per cent on Monday. The global benchmark has fallen from over $77 hit in early July – its highest since late 2018.
Tuesday is the final trading day for August US crude futures, adding volatility to the market, Yawger said.
The expiring US crude August contract was up 43 cents a barrel at $66.85 after earlier touching a session low of $65.21. The contract fell 7.5 per cent on Monday. The next front month, September , was up 55 cents, or 0.8 per cent at $66.90.
Still, the market remained skeptical that the price increase would last.
“As things stand, it is hard to see prices staging a comeback unless virus jitters are brought back under control,” said Stephen Brennock of oil broker PVM.
“The market is clearly unsettled about the demand outlook.”
The Delta coronavirus variant has becomethe dominant strain worldwide, U.S. officials said on Friday.
The variant is unlikely to jeopardise the recovery of global growth, though it could cause “regional hiccups,” said Julius Baer analyst Carsten Menke.
Tight oil supply in the near term, however, overshadowed coronavirus-related demand concerns.
Crude inventories in the United States were expected to have dropped last week, its ninth weekly decline. Industry data is due at 4:30 p.m., to be followed by official figures on Wednesday.
The Organisation of the Petroleum Exporting Countries, meanwhile, expects global oil demand to grow by 6.6 per cent in 2021. Thecartel and its allies, known as OPEC+, agreed on Sunday to increase output from August, unwinding more of the supply curbs put in place when the pandemic struck last year.
“Global demand still appears to be recovering dynamically, so the oil market should end up in supply deficit in the coming months despite the production hikes to be implemented by OPEC+,” said Eugen Weinberg of Commerzbank.