• Rising cases of the Delta coronavirus variant in China have triggered concerns over oil demand.
  • Ongoing US-Iran tensions have eased concerns over the return of Iranian oil into the market.
  • Investors are keen on the weekly US oil inventory data for further cues on the demand outlook

Demand outlook

Crude oil price is on a rebound after plunging in the previous session. On the one hand, optimism on global oil demand remains amid the ongoing summer driving season. However, the aggressive spreading of the Delta variant has triggered demand concerns. 

Among other regions, China is experiencing a fresh outbreak of COVID-19. Over 300 cases have been recorded over the past 10 days. The numbers are highest in months; an aspect that has triggered new travel restrictions. The Middle Kingdom, which is the largest consumer of crude oil in the world, had managed to control the spread of the virus within its borders in the past year.  

In the ensuing sessions, the crude oil prices will be reacting to the weekly US oil stockpiles data from the American Petroleum Institute (API) and Energy Information Administration (EIA). The numbers are expected to further shed light on the demand outlook. Late on Tuesday, API is set to release its figures, while EIA is scheduled to do so on Wednesday afternoon. 

In the previous release, API’s reading of -4.728 million barrels was better than the forecasted -3.433 million and prior week’s build of 0.806 million barrels. EIA confirmed the trend, thus boosting crude oil prices. For the week ending on 30th July, analysts expect oil stockpiles to have declined by 2.900 million barrels. The decline would be lower than the prior draw of 4.089 million barrels. Lower-than-expected readings are likely to push oil prices higher. 

US-Iran tensions

Crude oil price is finding support in the ongoing tensions between the United States and Iran. Over the past couple of months, the two parties have been striving to revive the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action. However, tough stands by both sides have stalled the efforts on several occasions. 

Among the key issues of contention, the Iranian government wants a guarantee that the US will not pull out of the deal in future as Trump did in 2018. Earlier in July, when the talks seemed to culminate into a deal, Iran stated that it was ready to restore its oil production within a short time once the US has lifted the existing sanctions. Iran’s oil minister, Bijan Zanganeh had indicated that the country is prepared to pump in 6 million bpd into the market. That would be its highest daily production level since the 1970s.    

In the latest news on the issue, the US and UK governments have blamed Iran for Friday’s drone attack on MV Mercer Street. The attack on the oil tanker, which is managed by an Israeli company, resulted in the death of a Romanian and Briton. 

In a press statement, the US Secretary of State, Antony Blinken stated that the government was “confident that Iran conducted this attack.” Similarly, the UK foreign secretary, Dominic Raab has asserted that the UK government believes the attack “was deliberate, targeted, and a clear violation of international law by Iran.”

WTI oil technical outlook

The crude oil price has remained above the psychological level of 70.00 despite the previous session’s plunge. Two weeks ago, WTI futures had dropped to a two-month low of 65.15 before rebounding. Since the beginning of 2021, the commodity has been rising. Indeed, March and July are the only months that WTI oil prices ended at a lower level. However, in the latter month, it has recovered most of the losses recorded earlier in the month. 

Since the start of 2021, the benchmark for US oil has surged by about 51.50%. At the time of writing, WTI futures were down by 0.52% at 71.21. On a two-hour chart, it is trading below the 25 and 50-day EMAs. 

Two-hour WTI chart, with the market staying below 25 and 50-day EMAs and approaching the 70.0 support.

In the short term, I expect the crude oil prices to remain above the psychological level of 70 as optimism on global oil demand beats concerns over the aggressive Delta variant. WTI oil is likely to rebound further to 72.37, which is along with the 25-day EMA. A move above that level will place the next resistance at 73.00 and Friday’s high at 74.25. However, this thesis will be invalidated by a move below 70.00.