Renewed Exuberance Lifts Brent Over $70

August is perhaps not a good time to look for rhyme or reason in the oil market, even though traders say a weaker US dollar and positive pandemic updates explain why Brent zoomed from $64.60 per barrel early Monday to $71/bbl by Tuesday morning. Traders note that oil prices are catching up with rising equity and copper values -- a move that is more volatile due to relatively small trading volumes (IOD Aug.23'21). Brent broke through two resistance levels during Tuesday’s ascent at neck-breaking speed, only to pause, drop and then resume its climb as traders apparently concluded that the Covid-19 Delta variant is not going to wreck oil demand after all. Oil fundamentals were helped by a deadly platform explosion in Mexico that has taken 400,000 barrels per day off the market for now, which will speed up draws of US crude inventories that are a beacon for global oil sentiment. “The paper market -- led by banks and funds -- has slightly disconnected from the physical market, which hasn’t fundamentally changed that much,” one analyst noted, adding that volatility in the market for options on futures contracts also blew over into the oil futures market. For this market to sustain its rally, the analyst added, the prompt premium over later deliveries on the forward curve of futures needs to strengthen. That occurred for Brent, but not so much for US benchmark West Texas Intermediate (WTI). The premium of prompt WTI over deliveries in six months is $1.90, versus $1.65 last week. Brent is now at a $2.60 premium versus $2 last week. The higher premium is a sign that the market is undersupplied. October Brent on ICE Futures closed up $2.30 at $71.05/bbl, while October WTI on the Nymex ended $1.90 up at $67.54/bbl. Prices for refined products were sharing in the exuberance, with diesel and gasoline futures contracts rising some 2.5%. The demand outlook has gotten a boost by the US’ Federal Drug Administration formally approving the Pfizer Covid-19 vaccine and then China reporting no new infections. Energy Intelligence balances show that global oil inventories are set to drain through the end of the year at more than 1 million b/d, which would further tighten the market and help put a floor under crude prices. John van Schaik, New York