NEW YORK: Oil prices rose 3% on Tuesday, largely driven by profit taking after more than a week's losses and supported by rising demand in Europe and the United States.
Brent crude was up $2.06, or 3%, at $71.10 a barrel by 12:33 a.m. ET (1633 GMT,) and US oil rose $2.28, or 3.4%, to $68.76 a barrel.
Both contracts dropped around 2.5% on Monday and fell by the most in months last week on concerns over rising COVID-19 cases.
"While profit taking out of short holdings could prove to be today's main feature, we expect the bulk of today's trade to contain within about the upper half of yesterday's wide $2.5 range," said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.
"We believe that some improvement on the coronavirus front will need to be seen to prompt a sustainable upside reversal in oil pricing."
The rapid spread of the Delta variant of the coronavirus pushed cases and hospitalizations in the United States to a six-month high.
Still, US demand has shown signs of improvement.
Growth in employment and increasing mobility have led to rising gasoline consumption so far in 2021, the US Energy Information Administration said in a monthly forecast.
US gasoline consumption is expected to average 8.8 million barrels per day (bpd) in 2021, up from 8 million bpd in 2020, and the trend of rising employment and mobility is expected to continue into next year, and lead to gasoline consumption averaging almost 9 million bpd in 2022, the agency said.
US crude, gasoline, and other product inventories are likely to have dropped last week, with gasoline stocks forecast to fall for a fourth consecutive week, a preliminary Reuters poll showed on Monday.
Crude oil inventories are expected to have fallen by about 1.1 barrels in the week to Aug. 6, according to the average estimate of six analysts polled by Reuters.
The US Senate on Tuesday passed a $1 trillion infrastructure package that is a top priority for US President Joe Biden, a bipartisan victory for the White House that could provide the nation's biggest investment in decades in roads, bridges, airports and waterways. If enacted, the bill would boost the economy and demand for oil products, analysts said.
Successful vaccination programmes in the West and encouraging economic data come in sharp contrast to rising infections in the East.
In Australia, police are on the streets to enforce COVID-related restrictions, while some cities in China, the world's top crude oil importer, have stepped up mass testing as authorities try to stamp out a new surge of the virus.
"The lockdowns (in China) could instigate a momentary pause in price action, but as COVID-19 cases are expected to abate quickly given the relatively low number of infections, the downside may be fleeting," said StoneX analyst Kevin Solomon.
Economic data this week, especially the US Consumer Price Index on Wednesday, will provide guidance on how hard the virus will hit global and regional oil consumption, analysts said.
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