Oil extends gain after rally to $70 with Delta angst easing

Bloomberg

Oil prices gained for a second session, building on the biggest one-day gain in five months, amid glimmers of optimism among bulls that the Delta coronavirus variant’s hit to demand may be passing.
Brent futures topped $70 a barrel, after falling below that level last week, when the market underwent its longest sell-off in years on concern about demand caused by the virus. Both the global benchmark and West Texas Intermediate surged by more than 5% on Monday.
China has rapidly brought local virus cases down to zero and traffic is showing signs of recovery, although the variant continues to impact other regions. Separately, a fire on a Mexican oil platform wiped out more than 400,000 barrels a day of the nation’s output, curbing supply.
“The Mexican disruption is something worth highlighting, depending on how long it stays offline,” said Giovanni Staunovo, commodity analyst at UBS Group. “Some of the price gains could have been driven by capitulating shorts.”
Covid’s resurgence has interrupted oil’s rally and has prompted speculation that Opec+ may reassess its current plan to return additional barrels to the market. The group next meets on September 1. Goldman Sachs Group Inc, however, reiterated that the demand impact from delta would be transient, while UBS Group AG sees Brent crude recovering to $75 a barrel on market tightness.
The rally also saw a sharp strengthening timespreads that indicate market strength. The difference between the nearest two December Brent futures contracts jumped by the most since April.
West Texas Intermediate for October delivery rose 1.9% to $66.86 a barrel in London after jumping 5.3% on Monday.
Later this week, investors will also be considering the Jackson Hole symposium — being held virtually from Thursday — which may offer insights into how the Federal Reserve plans to scale back stimulus.
Chinese airlines plan to operate the fewest flights in August since February, according to data from Cirium, following the latest virus outbreak. In Malaysia, rising infections are threatening to aggravate shortages of semiconductors and other components that have hammered automakers for months.