Oil continued its comeback, buoyed by signs of increasing demand as cities emerge from lockdown. But fears of a second wave of the virus, combined with record-high stockpiles in the U.S., are limiting the rally.
Top trading houses Vitol SA and Trafigura Group said global oil demand is recovering rapidly from its historic nadir. They cautioned, however, that a renewed outbreak of the coronavirus is clouding the long-term outlook. In the U.S., consumption is improving, but rising cases of Covid-19 in Texas and elsewhere has raised the possibility of lockdowns resuming. And a stubborn supply glut has further capped gains, with higher prices prompting some shale producers to restart wells just weeks after shutting them.
To sustain the rebound, shale companies should avoid investing in new drilling, said Stewart Glickman, an energy analyst at CFRA Research. “That will help on the supply side from the U.S.,” he said. “The best way to get out of this is to be more disciplined and wait for prices to go back above $50 and stay higher.”
West Texas Intermediate crude has failed to close above$40 since early March. Despite staging a remarkable recovery from its crash into negative territory, the U.S. benchmark is still down 36% this year. Meanwhile, American crude inventories rose last week to another record high. While physical markets in Europe are strengthening — with Brent for August trading above the September contract, sign of tightening supplies — the U.S. benchmark’s structure hasn’t turned as bullish.
PRICES:
West Texas Intermediate for July rose 88 cents to settle at $38.84 a barrel in New York
Brent for August gained 80 cents to settle at $41.51 a barrel
A slow resumption of flights will constrain jet-fuel consumption, and high unemployment will restrict gasoline use, the Organization of Petroleum Exporting Countries said Wednesday in its monthly report. S
