Oil firms after slide but Covid-19 and supply concerns remain

Oil edged up towards $69 a barrel on Tuesday as a tight physical market offset some of the Covid-19 and OPEC+ supply concerns behind the previous session's 7% slide.

In a sign of tight supply, crude inventories in the United States are expected to fall for the ninth week. OPEC expects world oil demand to grow by 6.6% in 2021 with the expansion focused on the second half of the 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.

Brent crude gained 22 cents, or 0.3%, to $68.84 a barrel by 1125 GMT, having slid by 6.8% on Monday. US crude for August, which expires later on Tuesday, was up 21 cents, or 0.3%, at $66.63 after falling 7.5% on Monday. The September US crude contract was down 0.2% at $66.21.

Monday's selloff, which pushed oil to a two-month low and hit other risk assets, such as equities, was driven by concern that rising Covid-19 infections could cause demand to weaken again just when OPEC+ has decided to increase supply.

"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 Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group 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.

The Delta coronavirus variant is now the dominant strain worldwide, US officials said on Friday.

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