Oil Futures Jump to a Three-Month High on Demand Optimism
The sun sets beyond crude oil storage tanks at the Juaymah tank farm at Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Ras Tanura, Saudi Arabia. (Photographer: Simon Dawson/Bloomberg)

Oil Futures Jump to a Three-Month High on Demand Optimism

Oil futures in New York and London closed at the highest level in more than three months on optimism that fuel demand is recovering as lockdowns are lifted.

Prices have rallied in recent days as states move forward with phased reopening even as concerns mount over the risk of a second wave of the pandemic. Sentiment has also been bolstered by evidence the OPEC+ group of producer nations is pressing ahead with output cuts.

“You see demand picking up and you see supply being relatively constrained,” said John Kilduff, a partner at Again Capital. “If there is any prospect whatsoever of a faltering here in terms of reopenings and demand continuing to ramp back up, we are very vulnerable.”

The market is now trading at levels last seen in early March, before the start of an all-out price war between Russia and Saudi Arabia sent futures plunging to multi-decade lows. Some of the world’s largest traders are seeing a rapid recovery in demand, and Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said last week that OPEC+ is on track to rebalance the market.

Oil Futures Jump to a Three-Month High on Demand Optimism

Adding to the bullish sentiment, analysts at Bank of America raised their Brent crude forecasts. “We expect inventories to come down sharply over the next few months,” analysts including Francisco Blanch wrote in a report. OPEC+ cuts and recovering consumption “will likely push the market into a growing deficit,” they said.

Delta Air Lines is resuming flights to China, and New Jersey Governor Phil Murphy said that Atlantic City casinos and indoor dining will reopen statewide on July 2. The U.K. reported fewer than 1,000 new cases for the first time since its lockdown was declared March 23.

  • West Texas Intermediate for July, which expires Monday, gained 71 cents to settle at $40.46 in New York
    • The more active August contract gained 90 cents to settle at $40.73
  • Brent futures for August added 89 cents to settle at $43.08 a barrel
  • Gulf Coast gasoline’s discount to futures rose 1 cent to 10.75 cents a gallon

Meanwhile, speculators are starting to put money back into products they had shunned during the rout. Money mangers last week had their biggest net-long position in Europe’s diesel benchmark since January, according to ICE Futures Europe data. In contrast, bullish bets declined for WTI and were steady for Brent.

“Oil prices have already reached an interim stage of recovery,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy AS. Crude reaching $45 to $50 a barrel “would not be justified at this stage despite the supply curtailments as there are still valid concerns on the demand side.”

Other oil-market news:
  • Almost a third of U.S. shale producers are technically insolvent with crude at $35 a barrel, according to Deloitte LLP, highlighting the industry’s acute financial strain.
  • An incipient recovery in the beleaguered U.S. natural gas market is evaporating before traders’ eyes as output revives, snatching away the prospect of higher prices badly needed by producers.
  • When a swarm of drones and missiles attacked Saudi oil facilities last September, knocking out 5% of global production, one Russian company sensed an opportunity to build up its business.

©2020 Bloomberg L.P.

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