Oil edges up alongside broader market gains as variant lingers

Futures in New York rose as much as 1.5% on Tuesday with U.S. equities advancing. Oil declined the most since September on Monday, as countries around the world attempt to curb the spread of the highly transmissible delta variant of Covid-19.

"The Dow is up almost 500 points so it's going to drag oil higher," said Jay Hatfield, chief executive officer of Infrastructure Capital Management.

Oil's upward trajectory has reversed in July as the spreading delta variant threatens the global economic recovery. The U.S. has warned citizens to not travel to the U.K. and Indonesia amid an increase in infections, and Singapore will tighten restrictions on dining-in and social gatherings. Goldman Sachs said the variant may curb global oil demand by 1 million barrels a day for a couple of months, though that's offset by a slow production ramp-up from OPEC+.

"The market has yet to adjust to the idea that the end of the pandemic might not be a clear binary event and it might not be soon," said Paul Horsnell, head of commodities research at Standard Chartered, adding that oil may have moved through the biggest period of supply tightness. "We believe we may be moving into a situation where economic decisions and the mobility possibilities open to consumers are still affected by the pandemic and remain so for an extended period."

Crude's plunge Monday also put the global benchmark under technical pressure. Brent fell below its 100-day moving average for the first time since November, and below its 50-day moving average for the first time since May. Such moves can often spark additional selling from trend-following funds.

In the U.S., analysts surveyed by Bloomberg estimate a crude stockpile decline of about 4.2 million barrels last week. The industry-funded American Petroleum Institute will release inventory data Tuesday afternoon, while the U.S. government will release its weekly tally on Wednesday.