Oil buoyed by optimism on demand recovery and output cuts

A pumpjack operates on an oil well in the Permian Basin. Photographer: Daniel Acker/Bloomberg

Oil rallied for a second day as global production cuts deepened and signs of a recovery in physical markets emerge.

Futures in New York rose as much as 20% Thursday. ConocoPhillips said it will reduce output by 420,000 barrels a day in June. Norway said it will participate in oil-output cuts for the first time since 2002, joining other major producers in reining in supply.

“The industry is responding like it’s a five-alarm fire,” said John Kilduff, partner at Again Capital LLC, regarding productions cuts. “The cutbacks being announced and undertaken are real and are going to be significant, so that’s helping to support prices.”

Prices are also rebounding after the United States Oil fund and GSCI Index completed their exits of the June contract earlier in the week, according to Kilduff. “As these bigger players exit, it’s going to ease the selling pressure and it has already eased,” Kilduff said.

Meanwhile, data on Wednesday showed signs of improved demand in the U.S. and Europe. In China, traffic is returning to the streets, supporting a boost in fuel use and refining rates.

Physical markets are showing early signs of improving, although from exceptionally weak levels, with crude from Russia to the Mediterranean being bid higher. Key price contracts, known as swaps, have also rallied in the North Sea. But while crude has ticked up from its lows, storage capacity is filling fast and oil major Royal Dutch Shell Plc warned it doesn’t expect a market recovery even in the medium term.

Heavy Western Canadian Select crude’s discount to U.S. benchmark futures shrank to $8 a barrel, the narrowest in more than a year as refineries in the Midwest, which take almost two-thirds of U.S. imports from Canada, boosted their crude use by almost 300,000 barrels a day last week.

Prices:
West Texas Intermediate for June delivery rose 16% to $17.52 a barrel as of 10:32 a.m. New York time. June Brent, which expires Thursday, advanced 14% to $25.62.

Still, Shell said Thursday that the coronavirus outbreak is going to have a lasting impact on consumer behavior, meaning there’s a higher chance that oil demand will peak this decade. Lifestyles will probably “be altered for some time to come” as the pandemic changes the economy, business, and people’s attitudes, Chief Executive Officer Ben van Beurden said.

Other oil-market news
Libyan militia commander Khalifa Haftar ordered his forces to freeze operations during the Muslim holy month of Ramadan, as criticism mounts over his bid to consolidate power in the oil-rich east of the country. Saudi Aramco may be just days away from announcing its official selling prices for June supplies to global customers, but traders and refiners in its most prized market have no idea what to expect. Shell cut its dividend for the first time since at least the Second World War as the oil slump triggered by the coronavirus pandemic reshapes the energy industry. China’s head-start on the path to recovery in oil demand is giving traders a rare opportunity to profit as coronavirus lockdowns continue to depress consumption in other parts of the world.

Other oil-market news

Libyan militia commander Khalifa Haftar ordered his forces to freeze operations during the Muslim holy month of Ramadan, as criticism mounts over his bid to consolidate power in the oil-rich east of the country.
Saudi Aramco may be just days away from announcing its official selling prices for June supplies to global customers, but traders and refiners in its most prized market have no idea what to expect.
Shell cut its dividend for the first time since at least the Second World War as the oil slump triggered by the coronavirus pandemic reshapes the energy industry.
China’s head-start on the path to recovery in oil demand is giving traders a rare opportunity to profit as coronavirus lockdowns continue to depress consumption in other parts of the world.

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