WTI Up Ahead of Expiry; Fears of Resurgent Pandemic Linger

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Following the worst sell-off since April 2020, crude and petroleum products futures on the New York Mercantile Exchange along with Brent crude on the Intercontinental Exchange bounced higher in early trade Tuesday, with the West Texas Intermediate August contact holding near a two-month low $66.80 ahead of expiration Tuesday afternoon as concerns over rising COVID-19 infections in the United States and globally, triggered by a more contagious Delta variant, clouded the outlook for a global demand recovery in the second half of the year.

With over 40% of Americans still unvaccinated or partially vaccinated, the Delta variant of coronavirus has spread like wildfire across the country in recent weeks, triggering renewed mask mandates and travel warnings from government officials.

"I am worried about what is to come, because we are seeing increasing cases, among the unvaccinated in particular," said U.S. surgeon general Vivek Murthy.

Centers of Disease Control and Prevention data show the number of daily COVID-19 infections jumped 66% from the previous week to 32,278 as of Sunday, which is 145% higher than the rate two weeks ago. Faced with a resurgent pandemic, local officials in Los Angeles county has reinstated a mask mandate for indoor gatherings regardless of vaccination status in an ominous sign of what is yet to come should the virus continue to spread at the current rate.

Investors on Monday sold off shares of companies directly affected by restrictions on mobility and business and bought safe-haven U.S. government bonds, the dollar and stocks that stood to benefit from renewed lockdowns. Both crude benchmarks declined by the most in dollar terms since early days of the pandemic when WTI futures dropped to a negative $37.63 per barrel (bbl) on April 20, 2020.

Following Monday's rout, stocks on Wall Street are set to rebound and the dollar index to soften, lifting contracts tied to Dow Jones Industrials 130 points higher and those linked to S&P 500 up for a 17-point opening bell jump. Benchmark on 10-year bond yields retreated to the lowest point since February at 1.185%.

In early trading, NYMEX August WTI gained $0.43 to $66.85 bbl after plummeting more than $5 bbl in the previous session, with the September contract trading near parity at $66.87 bbl against the expiring contract. The international crude benchmark Brent contract for September delivery advanced $0.48 to trade above $69 bbl. NYMEX August ULSD futures gained 1.48 cents to $2.0014 gallon, and the front-month NYMEX RBOB contact edged higher to trade near $2.1167 gallon.

Lending support to the oil complex, Organization of the Petroleum Exporting Countries in consortium with Russia-led partners agreed on Sunday to gradually unwind the remainder of 5.8 million barrels per day (bpd) in production cuts, bringing back 400,000 bpd a month until all output cut in April 2020, a total of 9.7 million bpd, is brought back online in late 2022. Under the new deal, five members to the agreement will receive a boost to their production baseline but not until May 2022. Collectively, OPEC+ will upgrade their baseline from which it references the cuts by 1.63 million bpd in the second half of next year.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges