Crude-oil futures climbed on Friday, with optimism over production cuts and U.S. prices and rising demand for gasoline helping to put U.S. benchmark prices on track for a weekly gain of more than 20%.
The moves come a day after a sharp rally collapsed amid doubts over compliance with an agreement to cut global production and comments from central bankers that injected some doubt about the pace of global economic recovery in the aftermath of the COVID-19 pandemic.
“While rising crude and product stocks continue to pose a threat to market fundamentals, key trends on both the supply and demand side have shifted bullish in recent data,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
West Texas Intermediate crude for June delivery on the New York Mercantile Exchange, rose 57 cents, or 2.4%, to $24.12 a barrel. Prices for the front-month contract were up roughly 22% for the week.
Global benchmark July Brent crude added 50 cents, or 1.7%, at $29.96 a barrel on ICE Futures Europe, on track for a 13% weekly climb.
“On the supply side, Saudi Arabia has increased its export price” as output cuts of nearly 10 million barrels per day by the Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC+, are officially under way, Fraser said in a daily market note.
“Meanwhile, the world’s leading crude producer over the past year—the United States—saw production fall another 200,000 barrels per day,” he said, citing data from the Energy Information Administration released Wednesday for the week ended May 1.
In its assessment on oil issued Friday, IHS Markit said the second quarter of this year will “see the largest volume of liquids production cuts, including shut-in production, in the history of the oil industry.” It expects as much as 17 million barrels per day total liquids output, including nearly 14 million barrels per day of crude-oil production, to be cut or shut-in during the period between April and June.
IHS Markit also expects oil demand in the second quarter of 2020 to be 22 million barrels a day less than a year ago. “This collapse in demand combined with low oil prices, storage constraints and government ordered cuts are driving what is an extraordinary level of liquids production cuts and shut-ins around the world,” it said.
Schneider Electric’s Fraser said the demand side is likely the most important given current conditions, and much of the current market optimism connects to consecutive weeks of demand improvement for most refined products.”
The EIA Wednesday reported a weekly decline in U.S. gasoline stocks. Motor gasoline demand saw implied demand drop 39.6% over a four-week period, but that’s an improvement from the previous report which showed four-week implied demand down by 43.7%.
“Many U.S. states have come back online to one degree or another,” from the lockdowns implemented to stem the spread of COVID-19, said Marshall Steeves, energy markets analyst at IHS Markit.
Data tracking by cellphone of movement “indicates driving has been increasing and that was borne out in last week’s gasoline domestic disappearance data,” he told MarketWatch. “The key is the recovery in demand, which is under way in Asia and parts of Europe, now the U.S. too.”
“May will likely be a transitional month in this respect, so the supply/demand divergence ought to narrow between increased supply cuts and improvements in demand,” he added. “That’s why I think that there is more downward pressure for the moment.”
On Nymex Friday, June gasoline was down 0.7% at 92.50 cents a gallon, though trading nearly 21% higher for the week. June heating oil was up 1% at 84.53 cents a gallon, with prices looking at a rise of 6% for the week.
June natural gas traded at $1.861 per million British thermal units, down 1.7% in Friday dealings, poised for a weekly decline of 1.6%.