(Bloomberg) – Oil posted its first consecutive weekly gain since February, as optimism over production cuts begins to erode in a massive glut of supply.
New York futures have risen 25% this week. Explorers cut production in response to crude oil trade in the order of $ 20 per barrel. EOG Resources Inc. is cutting approximately one-quarter of its oil production for May from one of the largest shale sites in the United States to date.
The number of US oil rigs has dropped to an unprecedented level since the start of the shale oil revolution in the last decade.
“We have good supply news,” said Bart Melek, chief commodity strategy at the Toronto Dominion Bank. “There’s a little appetite for risk.” Although he has warned that the market is not out of the woods yet as he looks down on the huge supply overhang.
As platforms close and production declines nationally, there are also signs of a recovery in demand, as drivers hit the roads as blockages from coronaviruses ease.
“We feel that we are going through the worst of the economic crisis and that we are past this peak in supply and demand imbalance,” said Peter McNally, global manager of industries, materials and energy , at Third Bridge. “The prospects for supply are going in the right direction.”
This week’s data from the Energy Information Administration has proven useful. U.S. gasoline supplied, a proxy for consumption, increased the most in almost two years last week, and crude oil production nationwide fell for the fifth consecutive week to the lowest since July 2019.
- West Texas Intermediate for June delivery advanced $ 1.19 to $ 24.74 a barrel on the New York Mercantile Exchange.
- Brent crude for July settlement climbed from $ 1.51 to $ 30.97 a barrel.
However, prices must be negotiated at a certain level in order to see the glut contracting significantly. According to Harry Tchilinguirian, head of raw materials market strategy at BNP Paribas SA, the American benchmark crude oil must be capped at around 25 dollars per barrel to force producers to reduce their production. This price level prevents the supply of overwhelming capacity to Cushing.
More news on the oil market:
- The increase in the price of most of its oil by Saudi Arabia heralds the end of a destructive price war, but it has not impressed Asian buyers.
- The unrest that rocked the Singapore oil trading community intensified on Friday when the country’s police raided the offices of ZenRock Commodities Trading Pte Ltd. following allegations by HSBC Holdings Plc that the company was involved in a number of “dishonest” transactions.
- PMI, the commercial arm of Petroleos Mexicanos, has declared force majeure on certain fuel shipments, postponing other shipments until the end of the year, after measures to contain the coronavirus epidemic depressed demand.
– With the help of Elizabeth Low, Paul Burkhardt and James Thornhill.
To contact the reporter on this story:
Olivia Raimonde in New York at [email protected]
To contact the editors responsible for this story:
David Marino at [email protected]
Mike Jeffers, Jessica Summers