U.S. oil climbs nearly 20% as traders bet on demand pickup as lockdowns ease
WTI on track for a five-session streak of gains, its longest for a most-active contract since late February
MarketWatch - Oil futures headed sharply higher on Tuesday, with U.S. benchmark prices on track for a fifth straight gain, as investors wagered on a slowdown in production and a gradual increase in appetite for the commodity as business lockdowns intended to curtail the spread of the COVID-19 pandemic are rolled back.
“As more economies start to reopen, crude oil finds itself in the opposite situation of where it has been, as the forces which drive the price collapse—falling demand and a failure to cut production—start to reverse into a situation of potentially recovering demand and falling production,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a daily note.
An agreement between the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, to reduce output by 9.7 million barrels a day in May and June officially began on May 1. Separately, some U.S. oil have also announced plans for voluntary output reductions, including ConocoPhillips COP, 0.00%.
Late Monday, California Gov. Gavin Newsom said the state would begin reopening some retail businesses for curbside service on Friday, representing a significant accomplishment for one of the first states to implement coronavirus shutdowns that have closed businesses for months on end.
“Demand devastation is fully priced in and the oversupply concerns are slowly easing,” said Edward Moya, senior market analyst at Oanda, in a market update. “Oil prices appear to be taking the staircase up and that will continue as expectations for fuel demand to pickup improve.”
West Texas Intermediate crude for June delivery CL.1, 15.50% CLM20, 15.45% on the New York Mercantile Exchange, was up $3.83, or 18.8%, at $24.22 a barrel on the New York Mercantile Exchange, after gaining 3.1% Monday. If prices hold on Tuesday, that would represent the highest finish for the June contract since April 17, FactSet data show. A fifth straight gain also would represent the longest streak of gains since late February.
Global benchmark July Brent crude BRNN20, 9.89% added $3, or 11%, at $30.20 a barrel on ICE Futures Europe, following a 2.9% gain in the previous session.
Commodities data provider Genscape reported an increase in crude inventories of 1.8 million barrels at Cushing, Oklahoma, the delivery point for West Texas Intermediate crude, which would be the smallest weekly gain since mid-March if confirmed by official government data due Wednesday, said Phil Flynn, senior market analyst at The Price Futures Group, citing information from Bloomberg News.
Meanwhile, commissioners for the Railroad Commission of Texas, which regulates the state’s oil and gas industry, were to hold a meeting Tuesday. A proposal to pro-ration, or curtail Texas crude-oil supplies, is on the agenda. Commissioner Ryan Sitton said in an interview on Bloomberg TV Monday that the effort to implement mandatory oil-output cuts was “dead” as the agency was not prepared to vote on pro-rationing.
At a meeting last month, Sitton had proposed a Texas cut of 20%, or about 1 million barrels per day, under certain conditions. The commission did not vote on pro-rationing at the time and instead formed a task force with an aim to research what can be done to aid the industry.
A glut of oil and a dwindling number of places to store it have punished crude prices in recent weeks.
“The existing problems did not magically get resolved, the storage constraint is still there, but a couple of weeks away, so we will see its effect on prices soon, as the market will get tight,” wrote Magnus Nysveen, head of analysis at Rystad Energy, in a Tuesday research note.
The rate of crude inventory build is slowing, analysts said and that perception has allowed optimism to seep back into the crude market as efforts to rebalance the oil market are under way.
“The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise,” wrote Nysveen.
That optimism helped the market to overcome worries about growing tensions between the U.S. and China that could lead to a dispute between the world’s largest economies that would likely deliver another hit to crude demand.
Still, investors remain cautious about the outlook in the near term, Rystad’s analyst said, adding that “our view is that we will see a price recovery on the longer term.”
Back on Nymex, June gasoline RBM20, 7.95% traded 7.5% higher at 88.32 cents a gallon, while June heating oil HOM20, 7.45% tacked on 7.8% to 86.55 cents a gallon.
June natural gas NGM20, 7.02% rose 7.6% to $2.145 per million British thermal units.
Weekly U.S. petroleum supply data are due out from the American Petroleum Institute late Tuesday and from the Energy Information Administration Wednesday morning. On average, analysts polled by S&P Global Platts expect the EIA to reported a climb of 7.1 million barrels in crude stockpiles for the week ended May 1, along with a decline of 400,000 barrels in gasoline supplies and an increase of 3.5 million barrels for distillate inventories.
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