Oil futures rose sharply on Monday after the U.S. benchmark suffered its biggest weekly drop since October on worries the continued spread of the delta variant of the coronavirus that causes COVID-19 will dent demand for crude.

“Oil was way oversold and fire sale was on,” Naeem Aslam, chief market analyst at AvaTrade, told MarketWatch. “Bargain hunters are wasting no time to closing the deal and this is pushing the price higher.”

West Texas Intermediate crude for October delivery


rose $3.68, or 5.9%, to $65.82 a barrel on the New York Mercantile Exchange. WTI dropped 8.9% last week, taking the U.S. benchmark to a three-month low. October Brent crude

the global benchmark, jumped $3.67, or 5.6%, to $68.85 a barrel on ICE Futures Europe, after also falling to its lowest since May last week.

Both benchmarks were on track to snap seven-day losing streaks. That was the longest losing streak for WTI oil since the eight session decline ended Oct. 3, 2019, according to Dow Jones Market Data.

Concerns around the rapidly spreading delta variant have forced demand expectations lower through the remainder of the year, said Robbie Fraser, global research and analytics manager at Schneider Electric.

However, “crude and product inventories remain at low levels across all markets,” he said in a Monday note. That “continues to raise the floor against any major bearish move.”

“For that to change, the market will need to see a consistent run of oversupply,” he said. “Those conditions become more realistic moving into Q1 next year as recent demand weakness combines with seasonal declines, and the potential for supply increases” from both the U.S. and OPEC+ — the Organization of the Petroleum Exporting Countries and their allies.

The move up for oil comes despite Monday’s announcement by the U.S. Energy Department that it plans to sell up to 20 million barrels of crude oil from the nation’s Strategic Petroleum Reserve. Contracts will be awarded no later than Sept. 13 with delivery to take place between Oct. 1 and Dec. 15, the Energy Department said.

“There’s a perception that the government doesn’t need the [SPR] like they used to because of the increase in U.S. production, so there’s an expectation that we have money sitting in these oil caverns and the government wants to get their hands on it,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

It’s “interesting we’re willing to forgo our reserve at this point,” he said. The Biden administration may be feeling the heat from higher gasoline prices and this is “one way to cool off prices and potentially cool off gasoline prices.”

Meanwhile, some analysts said signs of resilience in the physical market for crude belied the carnage seen in the futures market last week as metals, oil and other commodities came under heavy selling pressure.

“The financial market rout is moving at an asymmetric downward pace to what the physical market is telling us,” said Michael Tran, commodity analyst at RBC Capital Markets, in a note. “Atlantic Basin marginal barrels, while off the recent highs, are not signaling a struggle as extreme as the financial price weakness.”

Tran said that several marginal barrels in the North Sea were pricing at physical premiums not far off the highs of the year seen just two weeks ago.

“Most crudes are pricing softer, physically over the past week, but not in a fashion that would suggest distress. Headline fears of the delta variant and weak Chinese buying programs have weighed on the financial market for the past month, but the relative firmness in the physical market in prior weeks is indicative that other buyers are emerging to pick up the slack,” he wrote.

Moves in the U.S. dollar also helped to support oil prices on Monday. A surge in the dollar last week fed a selloff for commodities as a stronger greenback can make them more expensive to users of other currencies.

The dollar backed off on Monday, with the ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, down 0.5% after soaring last week to a nine-month high.

Investors also looked ahead to this week’s monetary policy symposium, which was set to be held in Jackson Hole, Wyo., but will take place virtually due to health concerns around the spread of the delta variant. Fed Chairman Jerome Powell is scheduled to speak Friday morning, with investors looking for clues to when the central bank will lay out a timetable for the tapering of its monthly asset purchases.

See: Investors look for Fed clues on tapering as Jackson Hole goes virtual because of delta variant

Rounding out action on Nymex Monday, September gasoline

tacked on 4.9% to $2.12 a gallon and September heating oil

rose 5.4% to $2.01 a gallon.

September natural gas

traded at $3.91 per million British thermal units, up 1.7%.

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