Oil Prices Rise On Wealth Of Good Economic, Trade, And Covid News

Strong data causes one analyst to reassess the condition of the global economy: File Image/PixaBay

Oil prices enjoyed another round of gains on Monday that brought the commodity to a five month high, thanks mainly to China reportedly complying with the first phase of the trade deal with the U.S., and to news that the Organization of the Petroleum Exporting Countries (OPEC) in July fully complied with cuts designed to maintain supply and demand balance during the pandemic.

Specifically, Chinese state-owned oil firms have tentatively booked tankers to transport at least 20 million barrels of U.S. crude for August and September; as for OPEC, sources told media that its compliance rate last month was around 97 percent.

The good news was matched by yet more signs of economic recovery:  U.S., Europe, and Asia equities strengthened on Monday, with the S&P 500 Index approaching the highest in months due to fresh stimulus from China's central bank; also, a gauge of builder sentiment in the U.S. jumped to its highest since 1998.

Additionally, Florida and Arizona, which have been the relentless focus of media attention as the top trouble zones of Covid outbreaks, announced the fewest new cases since June and the smallest infection increase in two months respectively.

Gary Cunningham, director of market research at Tradition Energy, said these factors contribute to "a general feeling that the economic times aren't as bad as originally anticipated."

As a result, Brent on Monday rose 57 cents, or 1.3 percent, to $45.37 per barrel, and West Texas Intermediate settled 88 cents, or 2.09 percent, higher at $42.89 per barrel.

Despite the ongoing concern over new Covid outbreaks, ANZ estimated that demand has risen 8 million barrels per day (bpd) over the past four months to 88 million bpd, just 13 million bpd below this time last year.

Inadvertently supporting this demand are the number of U.S. oil and natural gas rigs operating last week: they remained anchored at a record low for a 15th week, despite some drillers resuming operations as prices - and potential profits - creep steadily higher.

John Kemp, commodities analyst for Reuters, noted that although government initiatives to combat Covid render the future of the energy market unclear, the most significant trend is the continued shift towards bullish positioning in refined fuels rather than crude oil contracts.

He added that net positions in the three fuels contracts hit 91 million barrels last week, up from a low of just 31 million in early June.

Further support for oil in coming days could come from a series of medical studies showing strong and lasting immunity in people who developed mild coronavirus infections: "This calls for some optimism about herd immunity, and potentially a vaccine," said Smita Iyer, an immunologist at the University of California.

Also, China awarded its first Covid vaccine patent to CanSino Biologics Inc., which also started a late-stage trial in Russia as that country prepares to start mass production of its domestic vaccine developed by Moscow's Gamaleya Institute.