Oil Prices Rebounds as Dollar Slips, China Pandemic Jitters Ease

© Reuters.

By Yasin Ebrahim

AiVIF.com – Crude oil prices soared Monday, supported by weakness in the dollar, and signs that China is getting handle on the Delta variant of COVID-19, easing fears of a prolonged setback for travel-infused energy demand.

On the New York Mercantile Exchange crude futures for October delivery gained $3.50 to settle at $65.64 a barrel, while on London's Intercontinental Exchange (NYSE:ICE), Brent added $3.57 to settle at $68.75 a barrel.

China, the world's largest energy consumer, reported no new Covid-19 cases for the first time since July, easing investor fears of a prolonged setback for travel and energy demand.

"The coming weeks will reveal whether the travel restrictions that have been imposed in China and other Asia-Pacific countries will really have such an impact on fuel demand as last week‘s price performance suggests," Commerzbank (DE:CBKG) said in a note.

Goldman Sachs (NYSE:GS) estimated the impact of increased pandemic restrictions in China has cut oil demand by nearly 1 million barrels per day.

"China concerns are particularly pronounced in investor conversations around copper and oil, with our Commodities colleagues estimating a 0.7 million (barrels per day) bpd impact to oil demand from increased restrictions in China," Goldman Sachs said in a note.

As well as signs of positive signs on the pandemic front in China, a falling dollar also helped push up oil prices as risk-on sentiment gripped markets.

The US Dollar Index Futures, which measures the greenback against a trade-weighted basket of six major currencies, slid by 0.56% to 92.99.

A weaker dollar makes oil, priced in the U.S. dollars, attractive in other currencies, boosting demand.

Investor bets on oil prices, however, appear to suggest the jury is still out on whether the path of least resistance for oil prices is higher from. The latest positioning data show that the traders are trimming their bullish bets on oil.

Money managers cut their net long U.S. crude futures and options positions in the week to Aug. 17, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.   

Net longs position in WTI fell by 8,634 contracts to 274,968 contracts from the prior week, CFTC positing data.