Oil futures traded higher Tuesday, encouraged by continued cuts in crude production and a pickup in demand as pandemic-related lockdowns ease around the world.
“Supply and demand are both trending bullish for prices of late, with recent estimates citing a drop of 13-15 [million barrels per day] in terms of global production,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
Much of that figure leans on the agreement by the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, to slash 9.7 million barrels a day of output, while the U.S. “has also seen steep economic-driven declines of more than 1.5 mmbbl/d,” Fraser said in a daily market report.
Among signs of falling crude production in the U.S., oil-field services firm Baker Hughes
BKR,
on Friday reported a 10th straight weekly decline in the number of U.S. oil rigs.
“Still, the sudden drop in demand due to COVID-19 is what originally caused oil prices to crash, and a sustained price recovery will ultimately need that demand to return,” said Fraser. “Recent weeks have provided clear indications that demand has rebounded off the lows set in April, but most countries remain significantly below pre-COVID levels.”
West Texas Intermediate crude for July delivery
CL.1,
CLN20,
on the New York Mercantile Exchange rose 72 cents, or 2.2%, to $33.97 a barrel. July Brent crude
BRNN20,
the global benchmark, was up 48 cents, or 1.4%, at $36.01 a barrel on ICE Futures Europe.
Remarks Monday by Russia’s energy minister, Alexander Novak, were also supportive, according to analysts. Novak said the global oil market was on track to balance by June or July, news reports said.
Meanwhile, some analysts said optimism over easing lockdowns and news of progress toward a vaccine were lifting overall appetite for risk assets. U.S. benchmark stock indexes traded sharply higher on Wall Street Tuesday.
WTI broke a six-day winning streak on Friday but finished that week nearly 13% higher. U.S. markets were closed Monday for the Memorial Day holiday. ICE Brent crude rose Monday.
Meanwhile, the U.S. Oil Fund
USO,
ETF said in a filing to the U.S. Securities and Exchange Commission that it may be limited in its ability to buy oil futures and may be required to invest in other permitted investments including other oil-related interests and may hold larger amounts of U.S. Treasuries, cash and cash equivalents.
Looking ahead, U.S. data will be particularly important to watch this week as last week’s Energy Information Administration report on petroleum supplies “snapped a streak of rising demand, but should return to growth in Thursday’s report,” said Fraser.
The EIA will release its weekly report on Thursday, a day later than usual because of Monday’s U.S. Memorial Day holiday.
In Tuesday dealings on Nymex, the front-month June gasoline
RBM20,
traded at $1.0586 a gallon, up 2%, while June heating oil
HOM20,
was up 2.3% at $1.0042 a gallon.
June natural gas
NGM20,
which expires at the end of Wednesday’s trading session, tacked on 2.6% to $1.776 per million British thermal units.