Analysts in the US oil market are growing increasingly confident of stronger prices, as coronavirus lockdowns ease and consumption creeps up just as production plummets. West Texas Intermediate, the US crude benchmark, on Friday closed at $29.65 a barrel, up more than 40 percent since the start of May, as traders responded to improving supply-demand fundamentals.
Oil products supplied to the US market – a proxy for demand – hit 16.8m barrels a day in the first week of May, said the federal Energy Information Administration. That is 4m b/d less than a year earlier but, crucially for market sentiment, 9 percent higher than the week before.
US petrol demand, down about 30 percent from a year ago, rose 3 percent in the past week, said Patrick De Haan of GasBuddy, which analyses fuel prices and consumption. “It’s a partial resumption of economic activity,” said Mr. De Haan, explaining the modest uptick. “Also, we’re getting cabin fever.”
The brighter outlook comes just ahead of an ominous moment for the market, as front-month WTI expires on Tuesday. Last month a historic capitulation during frantic trading a day before the contract expired drove its price to minus $40 a barrel, spreading havoc from China to North Dakota.
Regulators last week cautioned traders to be prepared for another plunge below zero. Duly warned, speculators have this time exited the contract in good time – open interest on Friday was about a third the level it hit in the days before expiry in April. “Never say never, but the potential for negative oil is very low at this point,” said Stephen Schork, editor of the oil-market newsletter The Schork Report. More significant for the market is that oil operators are shutting producing wells, cutting US output faster than many analysts expected.
Rystad Energy, a consultancy, said up to 1.5m b/ d could be wiped from US supply by June, or more than 10 percent from peak output near 13m b/ d earlier this year. Standard Chartered, a bank, said production could soon drop beneath 10m b/d.