A stronger USD and a surprise US crude inventory build reported by the API added to the pressure on oil yesterday, with markets still trying to process the new OPEC+ deal. 

Still, oil is holding steady, and the bulls are putting up a strong showing after a significant correction to start the week. The rising Covid 19 infection rates and reintroduction of mobility restrictions in certain countries are casting shadows of uncertainty on the extent of the demand recovery.

Interestingly, Oil prices did not participate when the US stocks rebounded, triggering a rally in the broader markets. Indeed, this shows there are still many Delta variant jitters and perhaps a reflection that crude oil is still up 33% YTD  

The spread of the Delta variant of Covid-19 represents the next significant headwind for oil. But global demand remains a bit of a wild card. Though there is no indication yet that Delta will result in widespread lockdowns in developed and significant oil-consuming nations, the lingering concern that the recovery in demand may be slower than expected could limit the upside in oil until there is clear evidence that these concerns are baseless. I would argue that uncertainty on the demand side is a more substantial risk than supply worries at this stage; OPEC will not flood the market anytime soon.

While the API data was unhelpful to oil bulls, the more closely followed EIA inventory data is today. The consensus is for -4.5Mbbls; gasoline -1.0Mbbls; distillate +0.6Mbbls and refinery utilization +40bps to 92.2%; this would be a good outcome for oil bulls.