The oil market continues to balance re-opening optimism with unknowns around the economic uncertainties from a secondary outbreak of the Covid-19 virus.

The transmission mechanism from rising daily cases to financial markets can be appraised via two routes. Even if governments around the world choose not to reimpose countrywide lockdowns, key in the second wave argument is whether or not consumer behaviour turns more cautious and inhibits a recovery in spending.

Which may have traders cautiously thinking on the demand side that this may be as good as it is going to get over the short term in the absence of a vaccine.

It is one thing to be unabashedly bullish on oil over the medium term, but investors need to be realists when it comes to the current and still sickly state of the oil market.

Stock markets have been relatively unfazed by new cases of coronavirus in Beijing, thanks in no small measure to the abundance of policy support that allows investors to look through to 2021.

Commodity markets, on the other hand, and oil in particular deal in the here and now. And while the incredulous amounts of policy support will provide a massive tailwind to the recovery narrative and eventually reflate every asset price, including oil, we are not at that juncture now.

Nonetheless, the rapid response containment measures in Beijing, including orders to close all schools, indicate how seriously the Chinese government is taking recent developments and should positively reinforce about what to expect via quick curtailment measures post-lockdown elsewhere in the world.

Oil prices remain range-bound

Oil has been trading range-bound throughout most of the New York session, which does not offer an excellent lead-in narrative to Asia open. I have jokingly suggested you might as well flip a coin in Asia trade this week as the markets at times seem to have a mind of its own during this time zone.

While oil remains supported, we are trading down from its highs of the week with oil traders now looking for support from broader markets while finding it in an IEA oil market report. Indeed, the IEA paper was constructive in its view of a tightening market throughout 2H20 and 2021.

On the demand side, highlights were useful data from the US retail re-opening, and UK reports of a generic steroid drug found to be effective in treating Covid-19 have been taken positively.

But as mentioned above, the secondary outbreak headlines remain a concern as they can affect consumer behaviour via a self-imposed stay at home lockdowns.

It seems the inventory reports are having little impact on prices as Brent rose yesterday despite a large API build. Today, prices are closing New York trade near the session lows despite the EIA report printing more favourably for oil prices than the API, but still not in draw territory.

It is hard to know why oil raced higher yesterday, but I think a relatively positive medium and long-term outlook articulated Monday by the IEA may have helped.

At the same time, bullish sentiment appears to be emanating from quota discipline coming out of OPEC+ with Iraq seemingly aligning, this was echoed in OPEC+ reporting an 87 % compliance level.

However, the bulls were hoping for something closer to 100 % support, but it is still too early.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp