• U.S. equities rally, boosted by fresh China stimulus overnight
  • WTI futures reverse losses and rise as much as 1.4% on Monday

Oil surged in lockstep with stronger equities as investors searched for signals that the economy is on the mend, boosting prospects for consumption.

Equities in the U.S., Europe and Asia strengthened on Monday, with support from fresh stimulus out of China’s central bank and a rally in technology stocks. A gauge of builder sentiment in the U.S. jumped to its highest since 1998, signaling a bright spot in an economy reeling from the coronavirus pandemic.

Equities are rising, lifting all asset classes and reflecting the outlook that “we’re getting closer to some kind of economic recovery,” said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago. “We’ve seen a big recovery in the equity markets, we’re seeing the reflation trade take off, why not oil participate in that.”

Meanwhile, a panel of technical experts is reviewing the deal between the Organization of Petroleum Exporting Countries and its allies on Monday, followed by a ministerial meeting on Wednesday. The group is starting to return some crude supply to the market this month following deep reductions.

U.S. benchmark crude futures are up nearly 6% so far this month as inventories shrink and the virus crimps U.S. shale operations. In fact, oil driller Chaparral Energy Inc. filed for bankruptcy protection, adding to a string of energy companies that have done so amid the pandemic.

“While prices have sharply recovered, we still see substantial challenges ahead for the shale patch,” such as limited financing and increasing cost of capital for shale plays, TD Securities commodity strategists including Bart Melek said in a note. “This should bode well for prices as demand growth continues to normalize into 2021.”

Oil’s rally remains capped by the surge in coronavirus cases around the world that have depressed demand. The sale of diesel in India — the country’s most-used fuel and a proxy for its economic health — slumped 20% in the first half of August from the same period in July, according to people familiar with preliminary data from the country’s three biggest fuel retails.

Prices
  • West Texas Intermediate for September delivery rose 47 cents to $42.48 a barrel as of 10:33 a.m. in New York.
  • Brent for October settlement climbed 30 to $45.10 a barrel.

With the pandemic crippling consumption for gasoline and diesel during the normally active summer driving season, refiners on the U.S. Gulf Coast are cutting run rates or considering whether to restart certain process units after maintenance in response. Calcasieu Refining has idled its entire Lake Charles refinery in southwest Louisiana and may keep it shut for the rest of the year unless product demand improves and Exxon Mobil Corp. has also idled a key process unit at its Baton Rouge, Louisiana, refinery due to weak demand.

OPEC+ is planning to return about 1.5 million barrels a day to the market this month after trimming roughly 10% of global supply following a crash in demand due to the pandemic. Iraq has also made its strongest commitment yet to implement deep output cuts, including deeper cuts in the coming months to compensate for missing previous targets.

OPEC+ sees overall implementation of its pledged production cuts in July of 95%, before the meeting of the group’s Joint Technical Committee to formally assess compliance, said delegates.

Other oil-market news:
  • Four tankers whose fuel was seized by the U.S. over the past month were heading to Venezuela and carrying gasoline loaded in Iran, according to Iranian Oil Minister Bijan Namdar Zanganeh.
  • Colonial Pipeline Co., which operates the biggest pipeline system carrying fuel from the U.S. Gulf Coast refining center to markets across the eastern U.S., said part of the conduit was shut after a report of a fuel release.

–With assistance from Andy Hoffman and Alex Longley.

To contact the reporter on this story:
Andres Guerra Luz in New York at [email protected]

To contact the editors responsible for this story:
Jasmina Kelemen at [email protected]