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Oil futures gained ground Thursday, finding support after the International Energy Agency points to a tightening of the supply picture later in the year and a day after U.S. inventories showed their first decline in 16 weeks.
West Texas Intermediate crude for June delivery CL.1, +2.92% rose 95 cents, or 3.8%, to $26.24 a barrel on the New York Mercantile Exchange, while July Brent crude BRN.1, +2.94%, the global benchmark, was up $1.03, or 3.5%, at $30.22 a barrel.
The International Energy Agency on Thursday said the COVID-19 lockdowns will continue to sharply curtail crude demand in May, while producers implement the largest monthly production cut on record.
The IEA said world demand for crude will drop by 21.5 million barrels a day this month, while crude-producing nations and companies slash output by a “spectacular” 12 million barrels a day. A gradual pickup in demand as lockdowns ease and sharp reductions in output mean the outlook for crude has “improved somewhat” since April, the agency said.
For 2020, the IEA now looks for global crude demand to fall by 8.6 million barrels a day versus its April forecast for a fall of 9.3 million barrels a day.
Crude oil prices ended lower Wednesday, with downbeat remarks on the economic outlook from Federal Reserve Chairman Jerome Powell blamed for damping demand. At the same time, data from the Energy Information Administration showed the first drop in U.S. crude inventories since mid-January, including a decline in supplies at Cushing, Oklahoma, the delivery hub for Nymex futures.
Dwindling storage capacity in Cushing was blamed in large part for driving the expiring May WTI contract into negative territory for the first time in history last month. The COVID-19 pandemic has destroyed demand for crude, contributing to a global glut.
Eugen Weinberg, commodity analyst at Commerzbank, noted signs the market for crude is tightening in China. Leading export countries such as Saudi Arabia and Iraq cut shipment volumes and raised prices. Higher prices are also being charged now for forward shipments from Brazil, Russia, Oman and Africa.
What is more, demand from refineries appears to be rising sharply. Refinery utilization in the province of Shandong, a home for 80% of China’s small independent refineries, recently increased to 75%, its highest level since records began in 2011. It had plunged to below 40% in February amid the corona measures that were implemented in China.
Meanwhile, implied U.S. crude production on a 4-week moving average has fallen to around 11.8 million barrels a day, down more than 2 million barrels a day from its peak in mid-March, noted analysts at JBC Energy, a Vienna-based consulting firm. “The very latest data point even put it at below 11 million barrels a day and is of course a key element behind the first inventory draw and the associated rally in crude markets.”
