Oil held near its highest close in two months as supply curbs tightened the market and demand rebounded in the world’s largest consuming countries.
Brent crude rose 1 percent to trade near $35 a barrel. Prices for oil cargoes from Europe to Asia have surged, while Indian fuel sales jumped in the first half of May and Chinese consumption has all but returned to pre-virus levels. In South Africa, the biggest refinery resumed operations as the country’s lockdown eased, the latest sign of a gradual pick-up in demand.
West Texas Intermediate futures for June also rose, ahead of their expiry later on Tuesday. A month ago, May prices plunged before expiry, but oil has since staged a stellar recovery after producers slashed output. In an indication that the market is finding a new equilibrium, the premium traders pay for bearish put options versus bullish calls fell to the lowest since early March.
On the supply side, shale oil output from the US, the world’s biggest producer, is forecast to fall to the lowest since late 2018 next month, according to the Energy Information Administration. There’s also been a “stunning reversal” in OPEC+ shipments in May, data intelligence firm Kpler said, after the alliance’s deal to curb production kicked in at the beginning of the month.
“There’s a lot of optimism baked in here,” said Paul Horsnell, head of commodities research at Standard Chartered. “The market has balanced by supply coming off faster than expected.”
In Europe and North America, some of the hardest-hit areas are moving ahead with restarting their economies. Restaurants in Italy reopened, and New York Governor Andrew Cuomo said the state would open a sixth region. Meanwhile, US biotechnology company Moderna Inc. said its vaccine showed signs it can create an immune-system response to the coronavirus.
As the economic recovery gets under way, the nearest corners of the oil market are tightening sharply. WTI’s closest contract settled above the next month on Monday for the first time since January, a sign that concerns over a glut have eased.