Oil is heading for a third weekly gain on signs the market is slowly rebalancing as major producers slash supply and consumption recovers after a historic collapse in demand due to the coronavirus.
Futures in New York are up about 13 per cent this week and traded near a six-week high on Friday around $28 a barrel. China’s industrial output increased in April for the first time since the outbreak, signalling economic recovery aided by government stimulus efforts. Meanwhile, Saudi Arabia has slashed supply to its customers in the U.S., Europe and Asia as OPEC and its allies reduce production sharply.
Oil is down more than 50 per cent this year after a rout that pushed prices below zero and the road back to pre-virus levels of demand looks long and uncertain. Still, bright sports have emerged this week, with BP plc seeing oil demand surging back and the International Energy Agency saying the market’s outlook has improved. OPEC+ has cut daily exports by almost six million barrels during the first 14 days of this month, according to Petro-Logistics, buoying the global Brent benchmark above $30.
“We believe stocks will be reduced gradually over the next 12 months or so,” said Rystad Energy head of oil markets Bjornar Tonhaugen. “Brent stabilizing above $30 gives the market confidence that frightening days of negative prices and record daily declines are behind us.”
- West Texas Intermediate for June delivery gained 1.8 per cent to $28.05 a barrel as of 10:46 a.m. London time
- Brent for July settlement climbed 2.2 per cent to $31.82 a barrel
Signs of a tighter market are increasing across the globe. Timespreads – market indicators that point to the level of oversupply – are the least bearish in about two months in Europe, the U.S. and the Middle East. Options markets have also turned their least bearish since March.
Industrial output in China rose 3.9 per cent from a year earlier, reversing a drop of 1.1 per cent in March, data showed Friday. In spite of the improvement, the Chinese economy “hasn’t returned to normal level,” said Liu Aihua, a spokeswoman for the National Bureau of Statistics.
The market recovery remains fragile. Over 30 tankers laden with Saudi Arabian oil are set to reach the U.S. in May and June, according to ship-tracking data compiled by Bloomberg, putting fresh pressure on storage just as a glut in America shows signs of easing
© 2020 Bloomberg L.P.