Oil rebounds as market seizes on discounted prices

The initial price cap on Russian oil will be set "at a level based on a range of technical inputs."
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Crude oil futures rebounded on Tuesday as market participants vied to take advantage of oil's two-month low hit in the previous session.

Monday's selloff, spurred by demand destruction fears amid rising COVID-19 cases, pushed oil about 7% lower and hit other riskier assets. While equities avoided a new selloff on Tuesday, U.S. Treasury and German bond yields also slipped as a reminder that investors remained worried.

"There are bottom pickers trying to get into this dip," said Bob Yawger, director of energy futures at Mizuho in New York.

Brent crude rose 73 cents, or 1%, to settle at $69.35 per barrel, having slid by 6.8% on Monday. The global benchmark has fallen from over $77 hit in early July - its highest since late 2018.

Tuesday is the final trading day for August U.S. crude futures, adding volatility to the market, Yawger said.

The expiring U.S. crude August settled 1.5% higher at $67.42 per barrel after earlier touching a session low of $65.21. The contract fell 7.5% on Monday.

Still, the market remained skeptical that the price increase would last.

"As things stand, it is hard to see prices staging a comeback unless virus jitters are brought back under control," said Stephen Brennock of oil broker PVM.

"The market is clearly unsettled about the demand outlook."

The Delta coronavirus variant has become the dominant strain worldwide, U.S. officials said on Friday.

The variant is unlikely to jeopardise the recovery of global growth, though it could cause "regional hiccups," said Julius Baer analyst Carsten Menke.

Tight oil supply in the near term, however, overshadowed coronavirus-related demand concerns.

Crude inventories in the United States were expected to have dropped last week, its ninth weekly decline. Industry data is due at 4:30 p.m., to be followed by official figures on Wednesday.

The Organization of the Petroleum Exporting Countries, meanwhile, expects global oil demand to grow by 6.6% in 2021. The cartel and its allies, known as OPEC+, agreed on Sunday to increase output from August, unwinding more of the supply curbs put in place when the pandemic struck last year.

"Global demand still appears to be recovering dynamically, so the oil market should end up in supply deficit in the coming months despite the production hikes to be implemented by OPEC+," said Eugen Weinberg of Commerzbank.