Oil Prices Skyrocket On Emerging Sense That Delta Fears May Be Overblown

But Kemp says don't expect keystone long haul aviation to recover until 2022: File Image/Pixabay

Oil prices on Monday skyrocketed following the commodity's its worst week in more than nine months due to fears of demand impact due to the Covid Delta variant; the rise was attributed partly to China reporting no new infections for the first time since July and the growing sense that the fear of Delta's impact may have been overdone.

West Texas Intermediate gained $3.50, or 5.6 percent, to settle at $65.64 per barrel, while Brent advanced 5.48 percent, or $3.57, to $68.75 per barrel.

Analysts at Commerzbank, which previously joined other analytical bodies in worrying that Delta would cause considerable damage to demand recovery globally, stated on Monday, "We find this price weakness excessive and believe it has more to do with the psychology of market participants than with any deterioration of fundamental data."

Goldman Sachs, which bucked the trend by maintaining that Delta and its effects would be transitory, stated on Monday, "While liquidity will likely remain low and the trend is not our friend right now, we believe the micro — steadily tightening commodity fundamentals — will trump these macro trends as we move toward autumn, pushing many markets like oil and base metals to new highs for this cycle."

Blue Line Futures added, "News of zero new cases in China has certainly provided a tailwind as it gives added light at the end of the Covid tunnel and a breath of fresh air to the demand landscape."

For the record, many other countries are reporting declining infection rates due to aggressive vaccination programs, and criminally under reported is that death and hospitalization rates continue to plummet overall, which supports Goldman's assertion that demand will grow substantially towards the end of this year.

But John Kemp, commodities analyst at Reuters, echoed the sentiment of many other analysts by declaring that Delta "has postponed the return to the office for many employees as well as the anticipated resumption of business and leisure-related flying.

"Many governments will remain reluctant to ease quarantines for international travellers and other restrictions on mobility until coronavirus transmission is under better control and the northern hemisphere winter is over."

Kemp added that therefore, "the anticipated increase in long-haul aviation has been pushed back from the second half of 2021 into 2022, delaying the expected increase in oil consumption

Still, Monday was a welcome return of oil's upward trajectory: Leo Mariani, managing director, equity research analyst at KeyBanc Capital Markets Inc. said, "Today is a big snap back."