Oil jumps as much as 6%, snapping longest losing streak since 2019

Oil prices jumped Monday, snapping a seven-day losing streak that was crude’s worst since 2019, as the dollar pulled back and traders bet the recent selling was overdone.

“News of zero new cases in China has certainly provided a tailwind as it gives added light at the end of the Covid tunnel and a breath of fresh air to the demand landscape,” noted analysts at Blue Line Futures. “Additionally, the U.S. Dollar has retreated from recent highs, underpinning the commodity landscape broadly.”

West Texas Intermediate crude futures, the U.S. oil benchmark, last traded $3.22, or 5.2%, higher at $65.35. Earlier in the day it rose more than 6% to hit a session high of $66, at which point it was on track for its best day since November.

The sharp jump marks a turnaround from last week when the contract sank nearly 9% for its worst weekly performance since October and second negative week in three. WTI ended Friday at its lowest level since May 20.

International benchmark Brent crude advanced 5%, or $3.20, to $68.38 per barrel on Monday, after posting its worst week since October.

Oil’s tumble came amid fears of a demand slowdown as the delta variant of Covid-19 spreads, leading to new lockdowns in countries including Japan and New Zealand. Additionally, weak economic data out of China, which is the world’s largest crude importer, weighed on prices. The latest U.S. inventory report also showed a rise in gasoline stocks as well as an uptick in output from U.S. producers.

But some Wall Street firms said the selling looked overdone.

“We find this price weakness excessive and believe it has more to do with the psychology of market participants than with any deterioration of fundamental data,” noted analysts at Commerzbank.

Goldman Sachs, meanwhile, said that macro headwinds including the reflation unwind and Covid concerns in China are veiling the bullish backdrop for oil and commodities more generally.

“While liquidity will likely remain low and the trend is not our friend right now, we believe the micro — steadily tightening commodity fundamentals — will trump these macro trends as we move toward autumn, pushing many markets like oil and base metals to new highs for this cycle,” the firm wrote Monday in a note to clients.

Energy stocks jumped on the heels of oil’s rise, and the group was the top-performing S&P 500 sector, gaining more than 3%. Diamondback Energy and Occidental were among the top performers, rising more than 6%. APA gained more than 5%.

The SPDR Oil & Gas Exploration & Production ETF and VanEck Vectors Oil Services ETF were each up more than 4%.

The energy sector fell more than 7% last week and has yet to reclaim its spot as the top-performing group this year. Energy was the best sector for the first half of the year but has been hit hard in recent weeks and is now the fourth-best sector for 2021, trailing financials, real estate and communication services.