Oil jumped to a five-month high alongside a surge in U.S. equities as optimism that an economic recovery may be on the horizon lifted hopes for improving fuel demand to follow. Equities in the U.S., Europe and Asia strengthened on Monday, with the S&P 500 Index approaching the highest in months, bolstered by fresh stimulus out of China’s central bank. A gauge of builder sentiment in the U.S. jumped to its highest since 1998, signaling a bright spot in an economy reeling from the coronavirus pandemic.
Further helping buoy sentiment, there are signs that some parts of the U.S. hardest hit by the outbreak may be improving, with Florida announcing the fewest new cases since June and Arizona reporting the smallest increase in new infections in two months. Rising homebuilder sentiment and the recovery in the stock market are contributing to “a general feeling that the economic times aren’t as bad as originally anticipated,” said Gary Cunningham, director of market research at Tradition Energy. “Optimism around the economic recovery” is translating to hopes for higher crude demand.
Meanwhile, a panel of technical experts is reviewing the deal between the Organization of Petroleum Exporting Countries and its allies on Monday, followed by a ministerial meeting on Wednesday. The group is starting to return some crude supply to the market this month following deep reductions.
U.S. benchmark crude futures are up almost 7% so far this month as inventories shrink and the virus crimps domestic shale operations. Crude output at major U.S. shale plays is expected to fall 19,000 barrels a day in September to 7.56 million barrels a day, according to the Energy Information Administration’s monthly Drilling Productivity Report. That comes as a string of energy companies file for bankruptcy protection in the wake of the pandemic, with oil driller Chaparral Energy Inc. among the latest examples.