U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Tuesday, helped by optimism for increased fuel demand following the reopenings of the U.S. and European economies. These increasing hopes for sooner-than-expected demand normalization are offsetting concerns over spreading COVID-19 cases in India and Brazil.
Dollar-denominated crude oil is also being supported by a weaker U.S. Dollar. The dollar teetered near multi-month lows against European currencies on Tuesday as Treasury yields stall due to renewed expectations that U.S. interest rates will remain low for an extended period.
Gasoline Demand Moves to Forefront
“Behind the gain is growing optimism of strong recovery in gasoline and other fuels in the United States and Europe in light of easing of various pandemic-related restrictions,” said Chiyoki Chen, chief analyst at Sunward Trading.
In India, the second-hardest hit by the pandemic, domestic sales of gasoline and diesel by state refiners plunged by a fifth in the first half of May from a month earlier as pandemic lockdowns hit industrial activities and consumption, preliminary data showed on Monday.
Despite the spreading infections in India, the price action suggests investors believe the problem will be solved in a matter of time as vaccinations increase.
On Monday, President Joe Biden announced the U.S. will send at least 20 million more COVID-19 vaccine doses abroad by the end of June, marking the first time the United States is sharing vaccines authorized for domestic use.
Optimism over Reopenings in US and Europe
The British economy reopened on Monday, giving 65 million people a measure of freedom after a four-month COVID-19 lockdown. And with accelerating vaccination rates, France and Spain have relaxed restrictions, and Portugal and the Netherlands have opened up travel.
In the United States, New York State will no longer require masks in most public spaces for people fully vaccinated against COVID-19 as of Wednesday, and other regions are opening up their economies as well.
The news out of the UK and US, offset the fact that Singapore reported the highest number of local infections in months and Taiwan saw a spike in cases, and both countries have reinstituted lockdown measures.
The bears are fighting a losing battle by trying to make the lingering concerns over the spread of COVID-19 in India, South America and parts of Asia an issue that could reduce demand.
It’s hard not to believe that demand will pick-up dramatically over the near-term with the British government giving 65 million people a measure of freedom after a four-month lockdown, accelerating vaccination rates in France and Spain and the easing travel restrictions in Portugal and the Netherlands.\