Brent nears $35/bbl on growing demand and tightening supply

By Ann Koh and Alex Longley on 5/19/2020

SINGAPORE (Bloomberg) --Oil held near a two-month high of $35 a barrel as supply curbs tighten the market and demand rebounds in the world’s largest consuming countries.

Prices for oil cargoes from Russia to Brazil have surged as fuel demand has recovered. Indian fuel sales have jumped in the first half of May and Chinese consumption has all but returned to where it was before the coronavirus outbreak. South Africa’s biggest oil refinery restarted operations as the country eases coronavirus-lockdown measures.

Tuesday also marks the expiry of the June West Texas Intermediate futures contract. While prices plunged at the end of the May contract’s trading period, oil has since staged a stellar recovery as producers embarked on deeper-than-expected output cuts. In a sign that the market is finding a new equilibrium, the premium traders pay for bearish put options versus bullish calls fell to the lowest since early March.

On the supply side, shale oil output from the U.S., the world’s biggest producer, is forecast to fall to the lowest since late 2018 next month, according to the Energy Information Administration. There’s also been a “stunning reversal” in OPEC+ shipments so far in May, data intelligence firm Kpler said, after the alliance’s deal to curb production kicked in at the beginning of the month.

“There’s a lot of optimism baked in here,” said Paul Horsnell, head of commodities research at Standard Chartered. “The market has balanced by supply coming off faster than expected.”

Prices:

  • WTI for June delivery rose 1.42% to $32.25 a barrel as of 10:21 a.m. in London
  • The more active July contract added 0.3% to $31.75 a barrel
  • Brent for July settlement dropped 0.1% to $34.79 a barrel

The prospects of a rebound in consumption were buoyed on Monday after American biotechnology company Moderna Inc. said its vaccine showed signs it can create an immune-system response to the virus. Italians were allowed to go back to restaurants and New York is set to open a sixth region as some of the hardest-hit areas in Europe and North America move ahead with restarting their economies.

As the recovery gets underway, the nearest corners of the oil market are tightening sharply. WTI’s closest contract settled above the next month on Monday for the first time since January, a sign that concerns over a glut have eased.

More oil-market news:

  • Swift and bold output cuts by OPEC and its allies are boosting prices of physical oil barrels in Asia as supply tightens.
  • Diesel prices in Asia are staging a modest recovery as demand for the industrial fuel improves on easing lockdowns and tightening supply.
  • With airlines still grounding flights, the last thing Europe probably needs right now is a giant cargo of jet fuel. Yet, a supertanker hauling about 2 million barrels of it is on its way from Asia.

Related News ///

FROM THE ARCHIVE ///

Comments ///

Comments

{{ error }}
{{ comment.comment.Name }} • {{ comment.timeAgo }}
{{ comment.comment.Text }}