Oil rose above $69 a barrel on Tuesday, recouping some of the previous session’s 7% slide, as a tight physical market pushed aside concerns about rising COVID-19 infections weakening the demand outlook and higher OPEC+ supply.
In a sign of tight supply, crude inventories in the United States are expected to fall for a ninth week. OPEC expects world oil demand to grow by 6.6% in 2021 with the expansion focused on the second half of the year.
“The oil market is still facing a supply deficit over the remainder of the year. This should limit the downside for oil prices,” said Stephen Brennock of oil broker PVM. “That being said, the market is clearly unsettled about the demand outlook.”
Brent crude gained 82 cents, or 1.2%, to $69.44 by 0810 GMT, after sliding 6.8% on Monday. U.S. crude for August , which expires later on Tuesday, was up 93 cents, or 1.4%, at $67.35, after falling 7.5% on Monday. The September U.S. crude contract was up 1% at $67.01.
“Investors should keep in mind that the United States economy, the world’s largest buyer of oil, is rapidly recovering,” said Naeem Aslam of online broker AvaTrade.
Monday’s selloff, which pushed oil to its lowest in two months and hit other risk assets like equities, was driven by concern that rising COVID-19 infections could cause demand to weaken again, just as OPEC+ has decided to add supply.
The Delta coronavirus variant is now the dominant strain worldwide, U.S. officials said on Friday. U.S. cases of COVID-19 are up 70% over the previous week and deaths are up 26%, with outbreaks occurring in parts of the country with low vaccination rates.
Oil was also hit after the Organization of the Petroleum Exporting Countries and allies, called OPEC+, reached a compromise on Sunday to increase output.