Brent oil climbed amid a broader market rebound after capping the longest run of declines in more than three years.
Futures in London rose 3.2% on Monday, rallying with equities and other commodities, after earlier slipping below $65 a barrel. In addition to more positive sentiment in financial markets, China has made progress in containing the fast-spreading delta variant, bringing local cases down to zero.
Oil’s scorching rally over the first half of the year has run into stiff headwinds recently, and the broader virus resurgence may prompt OPEC+ to reassess its pledge to keep boosting output each month. The group next meets on Sept. 1. The market will also be looking toward the Federal Reserve’s annual Jackson Hole symposium from Thursday — being held virtually — which may offer insights into how the central bank plans to taper bond purchases.
“We’ve seen quite some pressure in recent weeks with Covid dominating headlines again,” said Hans van Cleef, senior energy economist at ABN Amro. “So that could also explain a big part of today’s support. Bargain hunting and a spillover from the positive sentiment in other asset classes.”
The delta variant has also weakened the oil futures curve. The prompt timespread for Brent was 44 cents a barrel in backwardation — where near-dated contracts are more expensive than later-dated ones. That compares with 92 cents at the end of July. Goldman Sachs Group Inc. said in a note that prices had “overshot timespreads to the downside, suggesting an oversold market.”
– Bloomberg