U.S. oil prices climb 20% as traders bet on demand pickup as lockdowns ease

U.S. oil prices climb 20% as traders bet on demand pickup as lockdowns ease

Natural-gas futures rise on news of pipeline explosion

Oil futures ended sharply higher on Tuesday, with U.S. benchmark prices posting a fifth straight gain, as investors wagered on a slowdown in production and a gradual increase in appetite for the commodity as business lockdowns intended to curtail the spread of the COVID-19 pandemic are rolled back.

“As more economies start to reopen, crude oil finds itself in the opposite situation of where it has been, as the forces which drive the price collapse—falling demand and a failure to cut production—start to reverse into a situation of potentially recovering demand and falling production,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a daily note.

An agreement between the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, to reduce output by 9.7 million barrels a day in May and June officially began on May 1. Separately, some U.S. oil have also announced plans for voluntary output reductions, including ConocoPhillips US:COP.

Late Monday, California Gov. Gavin Newsom said the state would begin reopening some retail businesses for curbside service on Friday, representing a significant accomplishment for one of the first states to implement coronavirus shutdowns that have closed businesses for months on end.

“Demand devastation is fully priced in and the oversupply concerns are slowly easing,” said Edward Moya, senior market analyst at Oanda, in a market update. “Oil prices appear to be taking the staircase up and that will continue as expectations for fuel demand to pickup improve.”

West Texas Intermediate crude for June delivery US:CL US:CLM20 on the New York Mercantile Exchange, rose $4.17, or 20.5%, to settle at $24.56 a barrel on the New York Mercantile Exchange, after gaining 3.1% Monday. The settlement was the highest for a most-active contract since April 17 and marked a fifth consecutive session gain, FactSet data show.

Global benchmark July Brent crude UK:BRNN20 added $3.77, or 13.9%, to $30.97 a barrel on ICE Futures Europe, following a 2.9% gain in the previous session.

Commodities data provider Genscape reported an increase in crude inventories of 1.8 million barrels at Cushing, Oklahoma, the delivery point for West Texas Intermediate crude, which would be the smallest weekly gain since mid-March if confirmed by official government data due Wednesday, said Phil Flynn, senior market analyst at The Price Futures Group, citing information from Bloomberg News.

Meanwhile, commissioners for the Railroad Commission of Texas, which regulates the state’s oil and gas industry, on Tuesday rejected a proposal to pro-ration, or curtail Texas crude-oil supplies. At a meeting last month, Commissioner Ryan Sitton had proposed a state cut of 20%, or about 1 million barrels per day, under certain conditions.

On Tuesday, in his vote against the proposal, Chairman Wayne Christian said the problem for the oil market is “90% demand. It’s not going to be solved until people are on the roads or in the skies again.”

In recent weeks, a glut of oil and a dwindling number of places to store it has weighed on crude prices.

“The existing problems did not magically get resolved, the storage constraint is still there, but a couple of weeks away, so we will see its effect on prices soon, as the market will get tight,” wrote Magnus Nysveen, head of analysis at Rystad Energy, in a Tuesday research note.

The rate of crude inventory build is slowing, analysts said, and that perception has allowed optimism to seep back into the crude market as efforts to rebalance the oil market are under way.

“The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise,” wrote Nysveen.

That optimism helped the market to overcome worries about growing tensions between the U.S. and China that could lead to a dispute between the world’s largest economies that would likely deliver another hit to crude demand.

Still, investors remain cautious about the outlook in the near term, Rystad’s analyst said, adding that “our view is that we will see a price recovery on the longer term.”

Back on Nymex, June gasoline US:RBM20 settled 9.7% higher at 90.13 cents a gallon, while June heating oil US:HOM20 tacked on 11.6% to 89.60 cents a gallon.

Meanwhile, natural-gas futures climbed 7% following news of a pipeline explosion. Local news reports said there was an natural-gas pipeline explosion late Monday in Fleming Country, Kentucky.

Enbridge Inc. US:ENB identified the explosion at line 10 of its Texas Eastern Natural Gas system, according to WKYT-TV. Texas Eastern transmission pipeline can transport 11.69 billion cubic feet of natural gas per day.

June natural gas US:NGM20 rose 7.1% to $2.134 per million British thermal units.

Weekly U.S. petroleum supply data are due out from the American Petroleum Institute late Tuesday and from the Energy Information Administration Wednesday morning. On average, analysts polled by S&P Global Platts expect the EIA to reported a climb of 7.1 million barrels in crude stockpiles for the week ended May 1, along with a decline of 400,000 barrels in gasoline supplies and an increase of 3.5 million barrels for distillate inventories.

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