Oil traded near a five-week high as investors weighed the nascent recovery of demand against concerns about a resurgence in coronavirus cases if lockdowns are relaxed too early.
Saudi Arabia and Russia said in a joint statement they see signs of a recovery in oil demand. In Europe, Germany aims to fully reopen its borders by the middle of June, but China is sealing off cities in a province that borders North Korea amid a growing cluster of cases. Futures in New York pared earlier losses, after dropping as much as 2.8 per cent.
Though a fresh wave of virus cases would threaten a fragile recovery, there are some bright spots emerging in the physical oil market. Chinese refiners have bought Brazil’s Lula crude at a premium to the global Brent benchmark versus a discount of about $6 a barrel a few weeks ago, while Russia’s Urals crude hit a nine-month high on Tuesday. An industry report showed a decline at the key U.S. storage hub last week.
Oil is still down almost 60 per cent this year as the coronavirus outbreak cripples consumption. The head of the International Energy Agency said oil use will be below pre-coronavirus levels for at least a year, highlighting the depth of the collapse in consumption, while HSBC Group plc said demand may not recover to levels before the virus until 2023. Still, producers are responding with Iraq reducing contractual supplies to its customers and Russia nearing its OPEC+ output cut target.
“The tug-of-war between OPEC-led cuts and virus anxieties will limit upside price potential,” said PVM Oil Associates analyst Stephen Brennock.
- West Texas Intermediate for June delivery lost 11 cents to $25.67 a barrel as of 8:36 a.m. New York time
- Brent for July settlement added 0.4 per cent to $30.11 a barrel
Stockpile builds in the oil market are slowing, and there are signs demand is returning in the big Asian economies of China and India, while in the U.S., gasoline consumption is increasing. In addition to reporting a decline in inventories at Cushing, Okla., the API also said that gasoline stockpiles declined last week. The top infectious disease official in the U.S. said states reopening too quickly could hurt economic recovery.
“We now have 23 states that are opening up their local economies, that represents roughly 40 per cent of the gasoline demand in the U.S.,” Energy Secretary Dan Brouillette said in an interview with Bloomberg Television on Tuesday.
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