Oil jumped for a second day as global production cuts deepened and signs of a fledgling demand recovery emerged. Futures in New York rose by as much as 18%. Norway said it will participate in oil-output cuts for the first time since 2002, joining other major producers in reining in supply. Data on Wednesday showed a surprise surge in U.S. gasoline demand, while some European figures are improving. In China, traffic is returning to the streets, supporting a boost in fuel use and refining rates.
Physical markets are also showing early signs of firming, although from exceptionally weak levels, with crude from Russia to the Mediterranean pricing more strongly. But while prices have ticked up from their 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. “As storage fills up, producers will be forced to act with additional production shut-ins, and lower prices can be expected,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “If more countries curtail their supply, then we really can start talking about a possible resolution to the crisis and may see prices rising back to healthier levels.” Despite the supply cuts and indications of a tentative rebound in demand, there’s still a massive global glut of oil that will need to be cleared before there can be any meaningful recovery in prices. A fleet of supertankers carrying 43 million barrels of Saudi crude is bearing down on the U.S., which will add to the oversupply in the world’s largest economy.
U.S. output will fall by 2 million barrels a day in May compared with March and the price of crude has likely bottomed out, according to the head of trading house Mercuria Energy Group Ltd. Still, Shell said Thursday that the coronavirus outbreak is going to have a lasting impact on consumer behavior.