It was a surprisingly robust week for oil markets that saw Brent trading above $45/b for the first time since March this year, supported by better than consensus inventory draws.

However, prices were held in check by uncertainly over the trajectory of the Covid-19 spread, with global cases counts about to break 19 million and on pace to break 20 million in the not too distant future. At the same time, hopes for a new Coronavirus relief package and a weaker US dollar were enveloped by a more optimistic global economic scrim which helped keep prices in check throughout the week.

Even though it's widely expected that we could see a slide in tonight's (today’s) NFP payrolls due to reopening rewind throughout some of the more densely populated US Sun Belt states, a flat print could still negatively influence the short term view given how sensitive oil markets are to harmful economic data as it pertains to the virus spread.

Despite a high level of guesswork compiling the estimates, I’m at +900,000 on the global market surveys for July payrolls after +4.8mn in June (consensus is +1.5mn). By the Fourth of July, nearly two-thirds of the country had paused or reversed reopening plans due to the coronavirus resurgence, so the Sun Belt states' declines are expected to offset gains elsewhere.

On the flip side, robust NFP data might also remove the urgency of Washington coming together to back a new fiscal deal. Still, it would be crazy to think in an election year that fiscal spending to cover Main Street’s back would not continue to keep on keeping on.

For oil market concerns, the July payroll declines are getting fleshed out in gasoline demand which has all but hit a brick wall as consumer consumption has flatlined for now as the summer season driving clock winds down, raising questions about underlying demand.

Risks of a sharp decline in rising global supply and coronavirus infection numbers remain. Still, oil could continue to drift higher on optimism over September recovery coupled with education seasonality boost to payroll growth by as much as 500-750k, given many end-of-school-year layoffs took place in April rather than in June/July. The assumption is that most teachers would opt for the privacy of individual passenger vehicles rather than public transportation, thereby increasing gasoline consumption.

In this environment, traders may be content to focus on the ongoing market rebalancing. The recent surge in virus cases and the reimposition of some virus control measures will moderately slow the economic recovery in the near term but expect the recovery to get back on track in September – assuming virus developments don’t prompt the reimposition of widespread lockdowns. But, ultimately, traders will continue to train their eyes on the ultimate vaccine prize.

Given Asian traders’ unfortunate predisposition to US-China tensions ahead of the August 15 trade talks, I expect Asia oil market activity, barring a big headline, could remain muted as it has been the past few days, but even more so ahead of the NFP report.

Reprinted from fxstreet, the copyright all reserved by the original author.

Asia Oil: A surprisingly robust week for oil markets