Crude-oil futures headed higher early Wednesday, with the U.S. benchmark contract on pace for a sixth straight gain amid hopes energy demand will revive as economies reopen after the lockdowns imposed by the coronavirus epidemic, even though the market remains oversupplied.
Investors will be watching for weekly U.S. inventory data at 10:30 a.m. Eastern Time from the Energy Information Administration that is expected to show crude inventories rose by 7.1 million barrels last week, according to analysts polled by S&P Global Platts.
That closely followed report comes after the American Petroleum Institute reported late Tuesday that U.S. crude supplies rose by a higher-than-estimated 8.4 million barrels for the week ended May 1.
The API data also reportedly showed gasoline stockpiles down by 2.2 million barrels, while distillate inventories climbed by 6.1 million barrels. They also forecast a supply decline of 400,000 barrels for gasoline and a stockpiles increase of 3.5 million barrels for distillates.
While crude prices over the past several session have been supported by hopes for an increase in demand, along with some signs of a slowdown in production, supply remains burdensome and storage facilities are close to full, industry experts cautioned.
“The question is not if prices would stop rising, but when,” wrote Bjornar Tonhaugen, head of oil markets at Rystad Energy, in a daily research note.
“Oil prices have been on a gains rally in the last few days, as enthusiasm was plenty among traders that the OPEC+ cuts, the existing shut-ins and some demand rebound would be enough to already justify a market recovery,” he wrote. He was referring to closures of oil rigs in the U.S. and an agreement by the Organization of the Petroleum Exporting Countries and its allies to cut 9.7 million barrels a day in crude through the end of June that took effect on May 1.
“Demand, which indeed now is on the recovery road, is not yet enough to balance the produced oil and that oil has to go somewhere,” he wrote, advocating for prudence by investors.
West Texas Intermediate crude for June delivery on the New York Mercantile Exchange, rose 90 cents, or 3.7%, at $25,46 a barrel on the New York Mercantile Exchange, after gaining nearly 21% on Tuesday, marking its highest close for a most-active contract since April 17.
Global benchmark July Brent crude picked up 73 cents, or 2.4%, at $31,74 a barrel on ICE Futures Europe, following an almost 14% gain in the previous session.