DTN Oil

WASHINGTON (DTN) -- Recouping almost all of Monday's steep losses following a second day with gains, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session sharply higher, sending U.S. crude benchmark above $70 barrel (bbl) amid a one-two punch of a weakening dollar and optimism that accelerated vaccination rates across industrialized and developing economies in the second half of the year would offset the impact of a rapidly spreading Delta variant of coronavirus and circumvent deep lockdown measures that were deployed during the second quarter 2020.

Hitting a session high during market-on-close trade, NYMEX September West Texas Intermediate futures jumped above $70 bbl, up more than $3 on the session, and the international crude benchmark Brent contract for September delivery rallied $2.88 to settle at $72.23 bbl. NYMEX August RBOB futures advanced 8.52 cents or 3.96% to $2.2167 gallon, with August ULSD futures up 7.43 cents to settle at $2.0870 gallon.

Goldman Sachs on Wednesday morning referred to the recent surge in Delta-fueled infections and its impact on demand for commodities as "another manageable speed bump," adding that vaccines should limit the hospitalizations and death toll from the previous waves of the pandemic.

Investors on Wednesday appear to have reassessed their outlook, lowering their expectations that governments would again lock down their economies despite warnings from health officials that COVID-19 infections have increased exponentially in recent weeks. Supporting this narrative, the United Kingdom's scientific advisory group for the Emergency COVID Task Force estimates hospitalizations across Great Britain should peak at one-third of the winter wave before abating, with fewer severe cases and shorter hospital stays on average.

"If this proves to be the case -- with the U.K. the case study for all developed markets -- then Monday's move has overshot," said Goldman analysts.

Despite a longer-term upbeat outlook, Goldman revised lower its demand projections by 1 million barrels per day (bpd) over the next few months even if vaccines prove effective at lowering hospitalization the in the developed economies.

Global COVID-19 infections continued to rise this week, with record rates reported in South Korea, Thailand and Japan. Domestically, infection rates spiked over 60% from the previous week and are up 150% from two weeks ago, with the Delta variant accounting for around 83% of new cases, according to data published by the Centers for Disease Control and Prevention.

Wednesday's inventory report from the Energy Information Administration was mostly bearish, showing nationwide crude oil stocks increased for the first time in over two months last week and demand for gasoline stalled near 9.29 million bpd -- about 2% below the five-year average.

Recent demand data continues to underwhelm market expectations that pent-up demand for domestic road travel this summer would send gasoline consumption even higher. Nationwide gasoline inventories decreased slightly last week to 236.4 million bpd, matching the five-year average. Domestic refiners, meanwhile, decreased run rates to the lowest level since the first week of June at 91.4%, processing about 16 million bpd of crude oil daily. Bearish against expectations for another weekly drawdown, domestic crude oil inventories increased 2.1 million bbl from the previous week to 439.7 million bbl, snaping an eight-week destocking pattern.

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