Oil advanced for a second day on signs fuel consumption is starting to recover in the world’s biggest economies, while global production cuts also begin to offset the demand destruction caused by the coronavirus.
Futures in New York rose around 15% to above $17 a barrel. They surged by more than a fifth of their value on Wednesday as Energy Information Administration data showed a surprise drop in American gasoline stockpiles and a jump in demand. In China, traffic is returning to the streets, supporting a boost in fuel consumption and refinery processing rates.
U.S. output will fall by 2 million barrels a day in May compared with March and the price of crude has likely bottomed out, according to the head of trading house Mercuria Energy Group Ltd. Russia flagged that its production would fall by around a fifth and Norway also said it would also said it would curb output.
Despite the supply cuts and indications of a tentative rebound in demand, there’s still a massive global glut of oil that will need to be cleared before there can be any meaningful recovery in prices. A fleet of supertankers carrying 43 million barrels of Saudi Arabian crude is bearing down on the U.S., which will add to the over-supply in the world’s largest economy.
“Oil appears to have caught some tailwinds” with the EIA data less bearish than expected and gasoline demand recovering, said Vandana Hari, the founder of Vanda Insights in Singapore. “But it’s too early to call an inflection point.”
WTI for June delivery rose almost 15% to $17.31 a barrel on the New York Mercantile Exchange as of 12:10 p.m. in Singapore after jumping 22% on Wednesday. The discount for June futures relative to July was around $4 after blowing out to almost $8 Tuesday as major index funds ditched the front-month contract.
Brent added 10.5% to $24.90 a barrel on the ICE Futures Europe exchange after climbing 10% in the previous session.
Russian Energy Minister Alexander Novak told the Interfax news agency that the nation’s oil companies will cut production by about 19% from February levels. Norway, western Europe’s biggest producer, said it would curb output by 250,000 barrels a day in June and 134,000 barrels in the second half of the year. Meanwhile, Nigeria will ship the smallest volume of its key Qua Iboe crude grade since 2016 in May and June.
The EIA reported a smaller-than-expected 8.99 million-barrel increase in U.S. crude stockpiles and a 3.64 million-barrel build at Cushing, Oklahoma, the delivery point for futures. U.S. gasoline inventories fell by 3.67 million barrels, compared with expectations for a build of 2.49 million. Weekly gasoline supplied, an indicator of demand, rose by 549,000 barrels a day.
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