(Bloomberg) — Oil rose on optimism that fuel demand will keep rising and tighten the market, despite a Covid-19 resurgence in many regions.
Futures in New York added 0.6% after sliding 0.6% on Monday to settle near $74 a barrel. The vaccine rollout has accelerated the demand rebound across major economies, although the spread of the delta variant is a reminder that the recovery will be bumpy. The market is set for a significant tightening if OPEC+ doesn’t resolve a standoff to lift output, the International Energy Agency said.
“We have seen this playbook before — it was the European resurgence at the start of the year, then India followed by Southeast Asia,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “In the short term, we might see a bit of jitter across markets, but the fundamental picture has hardly budged.”
While oil has rallied more than 50% this year, the latest virus flare-up and the breakdown of OPEC+ supply talks last week is clouding the short-term outlook. The window for the alliance to boost output in August is also closing quickly. Saudi Arabia and the United Arab Emirates — whose dispute derailed a deal — have started to lock in volumes to customers next month, leaving little scope for change even if there is a breakthrough on production quotas.
The market remains in a bullish structure, but that’s eased slightly since the OPEC+ talks were abandoned. The prompt timespread for Brent was 75 cents a barrel in backwardation — where near-dated prices are more expensive than later-dated ones. That compares with 95 cents a week earlier.
Indonesia, Southeast Asia’s biggest economy, is being wracked by a brutal wave of Covid-19, with movement curbed in the industrial heartland of Java and the tourist enclave of Bali. Malaysia is still in the midst of a nationwide lockdown, while Thailand has just stepped up restrictions. Cases in the U.S. have also soared, recording the biggest weekly jump since April 2020.
China’s exports, meanwhile, unexpectedly rose in June, helping to underpin the economy amid signs the recovery is starting to slow. Growth accelerated to 32.2% in dollar terms from a year earlier. Crude oil imports gained slightly month-on-month as some refiners emerged from seasonal maintenance.
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