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.
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.
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