Oil Futures Notch Modest Gains Despite Resurgent Virus

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Shaking off steep losses from earlier this week, crude and refined products futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Friday and this week modestly higher, supported by bullish economic data out of the Eurozone and United States that showed a strong pace of business expansion this month despite a Delta-variant fueled wave of new COVID-19 infections and surging consumer prices, easing some concerns over fear of decelerating economic growth.

On the session, NYMEX September West Texas Intermediate futures added $0.16 to finish above $72 barrel (bbl) after hitting a three-month low $65.21 bbl on Monday, and the international crude benchmark Brent contract for September delivery settled above $74 bbl at $74.10, up $0.31 on the session. NYMEX August RBOB contract gained 1.81 cents to settle at $2.2913 gallon and August ULSD futures edged up 0.13 cent to $2.1339 gallon.

Oil complex finished a volatile week with modest gains on Friday despite lingering fears over a resurgent pandemic across major economies of the United States, Eurozone and Japan. Domestically, over 40% of Americans remain unvaccinated or partially vaccinated, according to data from the Centers for Disease Control and Prevention, highlighting the major challenge in leaving the 2020 pandemic in the rear view. COVID-19 infections are rising again in all 50 U.S. states, bringing the daily caseload up 65% from the previous week and over 145% from two weeks ago. Cases hit a 15-month low in late June before they began to rise again as vaccinations slowed and the Delta variant took hold in the country.

"The delta variant is more aggressive and much more transmissible than previously circulating strains," CDC Director Dr. Rochelle Walensky told reporters at a briefing Thursday. "It is one of the most infectious respiratory viruses we know of, and that I have seen in my 20-year career."

The Delta variant has already prompted several EU countries to reimpose travel and business restrictions, with renewed lockdown measures put in place in the major metropolitan areas of Moscow and Sydney as local authorities scramble to contain the viral spread. The resurgent virus surely has the potential to slow the rebound in oil demand, but the impact will likely be less severe than in previous waves of the pandemic. The Goldman Sachs research team told clients the Delta variant is "another manageable speed bump" for commodity markets, adding that vaccines should limit the hospitalizations and death toll from the previous waves of the pandemic.

In the European Union, where Delta has been circulating for over a month, business activity grew at the fastest rate in 21 years, with service industry brushing off COVID concerns and enjoying a summer rebound. However, business confidence for the year ahead dropped to the lowest point since February, hit by uncertainties surrounding the pandemic into the fall and winter seasons.

"Not only have rising case numbers led to a slide in business optimism to the lowest since February, further COVID-19 waves around the world could lead to further global supply chain delays and hence ever higher prices," commented Chris Williamson, chief businesses economist at IHS Markit.

In the United States, supply chain disruptions are wreaking havoc on some business operations, with service sector companies registering the softest expansion in new orders in five months, according to data published Friday morning by IHS Markit. The headline U.S. Composite Purchasing Manufacturing Index posted 59.7 in July, down from 63.7 in June.

"The provisional PMI data for July point to the pace of economic growth slowing for a second successive month, though importantly this cooling has followed an unprecedented growth spurt in May. The second quarter may therefore represent a peaking in the pace of economic growth according to the PMI, although the third quarter is still looking encouragingly strong," said Williamson.

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

Liubov Georges