Oil Prices Surge as Hope for Demand Recovery Rises

Oil Prices Surge as Hope for Demand Recovery Rises

Oil prices surge on Tuesday on expectations that oil demand will accelerate despite increased cases of COVID-19 and hopes that the Organisation of Petroleum Exporting Countries and allies (OPEC+) won’t allow oil prices to drop too much.

OPEC+ began the implementation of a plan to incrementally increase output by 400,000 barrels per day in August following the production agreement impasse between its key members – Saudi Arabia and the United Arab Emirates.

After a sustained downward trend for more than a week, oil prices made a fresh upward adjustment, supported by rising demand in Europe and the United States.

Increased covid-19 delta variant in China and rising infections in India have kept demand risks on the upside in addition to lower than expected economic data in the United States.

Also, the tension in the Gulf area and alleged infraction by the Iranian authority amidst negotiation to lift sanctions had impacted market sentiments. 

Oil market data shows that prices had been declining since the start of the month, leading some analysts to believe any further weakness moving forward will spur a response by the group, which meets on Sept. 1 to review market conditions.

Mobility restrictions imposed by China to contain the spread of the virus likely will be short-lived on oil demand, the analysts said.

Shrugging off the downsides, West Texas Intermediate oil futures for September delivery on the New York Mercantile Exchange were up 3.3% at $68.67 a barrel in morning trading.

Also, Brent crude for October delivery on the Intercontinental Exchange gained 2.8% to $70.96 per barrel.

Growth in employment and increasing mobility have led to rising gasoline consumption so far in 2021, the U.S. Energy Information Administration said in a monthly forecast.

U.S. gasoline consumption is expected to average 8.8 million barrels per day (bpd) in 2021, up from 8 million bpd in 2020, and the trend of rising employment and mobility is expected to continue into next year, and lead to gasoline consumption averaging almost 9 million bpd in 2022, the agency said.

The U.S. Senate on Tuesday passed a $1 trillion infrastructure package that is a top priority for U.S. President Joe Biden, a bipartisan victory for the White House that could provide the nation’s biggest investment in decades in roads, bridges, airports and waterways.

In Africa, vaccination remains slow but Nigeria is expected to resume inoculations on August 16 after receiving 4 million doses of Moderna vaccines. Successful vaccination programmes in the West and encouraging economic data to come in sharp contrast to rising infections in the East.

In Australia, police are on the streets to enforce COVID-related restrictions, while some cities in China, the world’s top crude oil importer have stepped up mass testing as authorities try to stamp out a new surge of the virus.

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Oil Prices Surge as Hope for Demand Recovery Rises