Oil trades at six-week high with demand optimism spurring rally
Shafaq News / Oil rose above $65 a barrel in New York for the first time in more than six weeks as signs of strengthening demand in key markets offset concerns about a Covid-19 resurgence in some countries, especially India, Reuters reported.
New York City aims to fully reopen July 1, while UK road fuel sales are nearing last year’s summer levels. Austrian refiner OMV is expecting to boost runs later in the year and Repsol reported a “slight recovery” in demand. Consumption may also get a boost when China breaks for an extended holiday on Saturday, with mobility expected to climb to a record.
Broader markets climbed on Thursday after the Federal Reserve strengthened its assessment on the US economy and reaffirmed aggressive policy support.
There has been a chorus of bullish voices on the outlook for crude this week, including a prediction from Goldman Sachs Group that oil demand will post a record jump over the next six months as vaccination rates accelerate. OPEC+ also raised its estimates for growth this year, but the alliance cautioned a worsening virus situation in India, Japan and Brazil could derail the recovery.
India has been hit particularly hard by a second wave that’s pummeled fuel consumption, prompting some refiners to consider boosting exports in a bid to avoid deep cuts to crude processing. Rystad Energy reduced its demand estimates for the nation and forecast a 1.4 million barrel-a-day surplus in global inventories next month due to the impact.
“Demand will be zooming back in the US as the economy opens up further,” said Bjarne Schieldrop, chief commodities strategist at SEB AB. “There will be weakness in India. But it is highly visible for OPEC+ and they can react at next meeting if necessary.”
West Texas Intermediate rose 1.9 per cent to $65.07 a barrel at 1.34pm London time.
Brent for June settlement gained 2 per cent to $68.61.
The short-term risks to the demand outlook are starting to show up in gauges of market health. The structure of the Middle Eastern Dubai benchmark flipped into a slight contango on Thursday, an indication that market tightness may be easing. The nearest portion of the Brent futures curve has also weakened.
The market recovery is flowing through to big oil companies. Royal Dutch Shell’s profit rose more than expected in the first quarter, while Total also had a strong start to the year. Some US producers are also restoring dividends as they rebound from the pandemic-driven crash.