Oil traded near a five-week high as investors weighed the nascent recovery of demand against concerns about a resurgence in coronavirus cases if lockdowns are relaxed too early. The head of the International Energy Agency said oil use will be below pre-coronavirus levels for at least a year, highlighting the depth of the collapse in consumption. The top infectious disease official in the U.S. said states reopening too quickly could hurt an economic recovery. Futures in New York dropped as much as 2.8%, before paring those losses.
Though a fresh wave of virus cases would threaten a fragile recovery, there are some bright spots emerging in the physical oil market. Chinese refiners have bought Brazil’s Lula crude at a premium to the global Brent benchmark versus a discount of about $6 a barrel a few weeks ago, while Russia’s Urals crude hit a nine-month high on Tuesday. An industry report showed a decline at the key U.S. storage hub last week. . cut its forecasts for global petroleum demand this year and next, while consultant IHS Markit doesn’t see the market recovering to pre-virus levels until the second half of 2021. Still, producers are responding with Iraq reducing contractual supplies to its customers and Saudi Arabia cutting output deeper.