Oil prices extended Monday’s 5-percent gain early into Tuesday, as concerns about global demand started to ease while a major outage in Mexico supported prices on the supply side.
As of 8:22 a.m. EDT, WTI Crude was up 1.34% at $66.55, and Brent Crude was up 1.50% at $69.77, attempting to bounce back to the $70 a barrel handle.
Oil prices had surged 5% at Monday’s close, rebounding from the longest losing streak since 2019 of seven consecutive settlements in the red, as investor risk appetite increased and the U.S. dollar softened.
The weaker dollar continued to support oil prices early on Tuesday, while the market sentiment about demand turned more positive after China’s ‘zero COVID policy’ paid off, with the world’s top crude oil importer reporting zero symptomatic COVID cases for the first time in weeks.
In addition, the U.S. Food and Drug Administration (FDA) gave the full approval on Monday to the Pfizer-BioNTech COVID-19 vaccine, the first vaccine to get full approval from the FDA, which had given emergency use authorization to the Pfizer and other vaccines. Some experts say that the full approval could encourage hesitant people to get a vaccine amid surging Delta variant cases in many parts of the world.
On the supply side, a major outage after a fatal fire at a Mexican platform is also lending support to oil prices. A fire on Sunday killed five workers on an offshore platform operated by Mexico’s state oil firm Pemex and injured another six. The platform and 125 wells are offline, which reduced Mexico’s crude oil production by 421,000 barrels per day (bpd), or around a quarter of the country’s output. A restart of the platform could take days.
“An extended outage would likely be supportive for heavier grades of crude oil, with reduced output tightening the market for heavier crude oil,” ING strategists Warren Patterson and Wenyu Yao said early on Tuesday.
According to Saxo Bank’s daily market note, “A rebound in demand over the coming weeks could still see Brent hit the top end of our current preferred range at $75. In the short-term, however, and ahead of Friday’s Jackson Hole event, Brent may find resistance at $70.40 followed by $71.75.”
By Tsvetana Paraskova for Oilprice.com
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Today oil prices extended Monday’s 5%-gain into Tuesday, as concerns about global demand started to ease particularly after China’s ‘zero COVID policy’ paid off, with the world’s top crude oil importer reporting zero symptomatic COVID cases for the first time in weeks.
The parallels are there for everybody to see. In May 2020 even at the height of the pandemic, China managed to control the pandemic with draconian measures and exited the lockdown thus leading both the global economy and global oil demand out of the doldrums. This is happening once more now with China bringing local COVID cases back to zero.
Global oil prices will soon recoup all their losses during the last two weeks and resume their surge with Brent crude expected to touch $80 a barrel before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London