Oil prices climbed by more than $1 a barrel on Monday, supported by output cuts and signs of a gradual recovery in demand amid easing coronavirus curbs, with U.S. oil showing no signs of last month’s contract expiry price rout.
Brent crude LCOc1 was up $1.33, or 4.1%, at $33.83 a barrel by 0634 GMT, after touching its highest since April 13. U.S. West Texas Intermediate crude CLc1 was up $1.65, or 5.6%, at $31.08 a barrel, after rising to its highest since March 16. The more active July contract CLc2 was at $31.05, up $1.53.
“Oil prices may show further upside momentum as the easing in mobility restrictions grows,” said Stephen Innes, chief global market strategist at AxiCorp in a note, referring to curbs that were designed to counter the coronavirus.
The June WTI contract expires on Tuesday, but there was little indication of WTI repeating the historic plunge below zero seen last month on the eve of the May contract’s expiry amid signs that demand for crude and derived fuels is recovering from its nadir.
Production is also falling as U.S. energy firms cut the number of oil and natural gas rigs operating to an all-time low for a second consecutive week. That partly helped ease concerns about the WTI contract’s delivery point in Cushing, Oklahoma, running out of space. [EIA/S]
“Given particularly that surprise draw that we saw on inventories last week in the U.S., it seems unlikely that those concerns about storage facilities will reassert themselves,” Michael McCarthy, chief market strategist at CMC Markets in Sydney said.
The Chicago Mercantile Exchange, which hosts trading in WTI futures, brokerages and the United States Oil Fund LP (USO.P), the largest oil-focused exchange-traded product in the country, have all taken steps that reduce open positions ahead of the WTI contract’s expiry.
The positive mood was reinforced as U.S. Federal Reserve Chairman Jerome Powell issued an optimistic outlook for economic recovery later this year.
“Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year,” Powell said Sunday night in broadcast remarks.
Also supporting oil prices are production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, a grouping known as OPEC+.
The world’s top exporter Saudi Arabia announced last week that it would cut an additional 1 million barrels per day in June, while OPEC+ wants to maintain existing oil cuts beyond June when the group is next due to meet.
Kuwait and Saudi Arabia have agreed to halt oil production from the joint Al-Khafji field for one month, starting from June 1, Kuwait’s Al Rai newspaper reported on Saturday.
Eurasia Group expects significant supply cuts to be maintained into 2021 as oil demand is only slowly picking up.
“Demand for road fuel is gradually rising as governments ease lockdowns, but recovery will be slow and there is a risk of repeat COVID-19 outbreaks and quarantine orders,” its analysts said in a note.