Oil market rose to near two-week highs overnight, benefiting from the general risk-on tone in the US stock market after sentiment was boosted by a much better than expected run of manufacturing and factory data around the globe.

The improving global cyclical activity data represents a rotating carousel of positive news that is currently overwhelming virus concerns.

However, when it comes to manufacturing output, it continues to suggest it’s easier for the central bank and government stimulus to fire up the industrial heartlands. Still, it remains a challenge to get people working again or even in some US states to leave their apartments.

The improving macro data likely pared a few weaker shorts overnight. I think it is fair to say that most oil market participants expected more downward pressure on oil to start the week with Covid-19 ravaging the landscape and OPEC + adding more barrels into play.

The theme remains the same, however, with prices hovering around the $44/barrel level this morning as demand recovers from 2Q lows but stammers from fully recovering because of the continued impact of Covid-19 on oil demand.

OPEC production cut agreement ends this month

August sees the lifting of OPEC+ production under the agreement. Still, the US rig count released Friday suggests no rebound in activity in the US beyond re-starting existing production wells, which remains supportive under the hood.

The actual volume returning will be limited to somewhere between 1.1-1.5 million barrels per day, thanks to a commitment to compensate for early failure to comply with production cut targets by a few key OPEC+ producers.

Still, a significant volume of OPEC+ oil will be returning to markets at a time of ongoing uncertainty around demand.

But the decisive early run of economic data for July so far does not indicate a faltering macro scrim that was expected in most circles. Despite the colossal rebound in May-June that saw oil prices in July flatline, not all positive momentum has been exhausted.

While it remains clear, the worst-case scenarios from 2Q have been ruled out, but the skies are not blue, while a shortage of contrails reminds us that a significant component of demand is absent as airline fleets around the world remain grounded.

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