Oil prices are inching higher at the open this morning, buoyed by robust industrial data from China released over the weekend and even more optimism over a US stimulus package.

On Sunday, Nancy Pelosi and US Treasury Secretary Mnuchin agreed to continue the conversations in the day ahead. The stimulus check would provide a considerable boost to the US economy and lend support to oil prices.

Hopes for US stimulus package and robust China data auger well, but the resurgence of Covid-19 clouds the view.

Profits of China’s major industrial firms remained on the steady path to recovery in August.

The robust earnings in China’s colossal production and operations engines provided further evidence of a strong economic comeback. The data augers well for the China growth story and the outlook for commodity prices.

Though Asia Pacific had more sings of de-risking on Friday ahead of China’s Golden Week, so perhaps Asia influence across broader markets, including oil, could be less of an impact this week.

However, reports that ministers in the UK are preparing to enforce “total” social lockdown across many Northern Britain and London could cap prices this morning. Sure, this could be an “overreaction” in an attempt to clamp down on further anti-lockdown protests after the massive anti demonstration at Trafalgar square on the weekend, which could eventually prove to be a Covid-19 hot spot.

A return to more stringent lockdown measures is an enormous risk to the view and will decimate servicing sectors still struggling to reopen. Regardless, it should serve as a reminder that lawmakers who were slow to respond to the initial coronavirus outbreak are running out of options and may have no choice but to re-impose stricter mobility restriction to prevent the Covid-19 curve from steepening.

The resurgence of Covid-19, marked by record numbers of cases in Europe, prompting the strengthening of various countries’ pandemic restrictions continues to weigh heavily on demand for oil outlook.

News flow on rising infection rates and more stringent lockdowns, a stronger US dollar, and the prospect of Libyan exports restarting are likely to cap prices this week until the US inventory data reports. Traders will then look for more support from this week’s US gasoline and distillate data.

Traders also report a spike in the volume of Iraqi crude cargoes being sold in the spot market for October loading, prompting concerns about the OPEC+ agreement. A third Libyan port reopened earlier this week in the latest sign that the political situation is stabilising, suggesting a clear upside risk to the ~200kb/d seen this year.

The main concern remains the sustainability of the tentative global economic recovery seen since 2Q, and the possible impact of a spike in infections into the northern hemisphere winter. There is sufficient wiggle room built into the OPEC+ production cut agreement to absorb minor demand shock, but it remains essential for OPEC+ to show the deal is working well.

For oil prices to resume their uptrend, investors likely need to turn more optimistic about global growth prospects, which seem most likely to hinge on Covid-19 control in various countries and the outlook for vaccine approval and distribution.

Given current testing hit rates, it may be a few more weeks before Covid-19 case growth starts to ease, so its most likely oil bulls will remain penned up for weeks or longer.

The bottom line for oil is relatively straightforward. It is hard to imagine any scenario in the near-term where travel gets back to pre-pandemic levels, and even with a vaccine in the pipeline, there are gnawing concerns that we are not in Kansas anymore, to quote Judy Garland.

That “normal,” as we knew it before February, is not coming back anytime soon.

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