'Bottom Feeders' Halt Oil's Panicked Plunge as Analysts Say Delta Won't Derail Demand

Goldman sees Delta as affecting the market for only a few months: File Image/Pixabay

With the recovery attributed to "bottom feeders" taking advantage of the state of the market, crude on Tuesday climbed over 1 percent, partially compensating for the previous session's massive 7 percent selloff spurred by demand fears due to increased Covid cases in some parts of the world.

Brent settled up 73 cents, or 1.1 percent, to $69.35 per barrel, while West Texas Intermediate ended up $1, or 1.5 percent, to $67.42.

Bob Yawger, director of energy futures at Mizuho, dismissed Tuesday's gains by saying, "There are bottom pickers trying to get into this dip."

Instead, the usual fears govern the investment world: "It is hard to see prices staging a comeback unless virus jitters are brought back under control," said Stephen Brennock, senior analyst at PVM, adding: "The market is clearly unsettled about the demand outlook."

In addition to ignoring the bigger picture that the Covid pandemic overall continues to retreat, investors seem to be rejecting the persistent mindset of analysts that even given the rise of the Delta variant, the demand outlook remains solid: Carsten Menke, analyst at Julius Baer, was the latest expert to echo this view by stating on Tuesday that while Delta could cause "regional hiccups," it is unlikely to jeopardize the recovery of global growth.

Indeed, the Organization of the Petroleum Exporting Countries (OPEC) expects global oil demand to grow by 6.6 percent in 2021.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, agreed, telling media on Tuesday that "Despite the volatility, I continue to like the sector, because I think this is just a hiccup; oil is definitely going to stay pretty much at these levels, perhaps even rise a little further as the economy begins to improve."

Also bullish was Goldman Sachs: in its latest monthly report the bank predicted the impact of the Delta variant to be in the neighborhood of "a potential 1 million barrels per day hit for only a couple months, and even less if vaccines prove effective at lowering hospitalizations in developing markets, the origin of most summer demand improvements.

"We believe that the oil market repricing to a higher equilibrium is far from over, with the bullish impulse shifting from the demand to the supply side."

Also of little apparent impact to investors was news on Tuesday that U.S. crude inventories are expected to show a ninth straight week of declines this week; government figures will be released on Wednesday.