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Workers operate a drilling rig for an EBR Energy LP natural gas well near Columbus, Texas.
Scott Dalton | Bloomberg | fake pictures
Oil prices rose on Tuesday as optimism about ongoing production cuts and recovery in demand with the reopening of economies around the world drove prices higher.
West Texas Intermediate, the US benchmark. US, rose 20.5%, or $ 4.15, to trade at $ 24.54 per barrel. The contract gained 3.08% on Monday, closing above $ 20 for the first time since mid-April, and is on track for its fifth consecutive day of earnings, which is the longest daily winning streak since July. Benchmark international crude Brent traded 12.4% higher at $ 30.57 a barrel, and is also preparing for its fifth consecutive positive session.
“One thing is clear, the bottom of the demand is behind us, and this is manifested in rising oil prices,” said Per Magnus Nysveen, chief analyst at Rystad Energy. The “key reason behind the strengthening of prices is the regional traffic data, which indicates that the bottom of the demand is behind us,” he added.
President Donald Trump weighed in on the price jump, writing “Oil prices are rising very well as demand starts again!” in a tweet on Tuesday morning.
Oil demand has fallen off a cliff as the coronavirus pandemic spread across the world, forcing billions of people to stay inland and bringing air travel to near deadlock. By some estimates, up to a third of global demand was erased in April.
But with the gradual re-opening of the economies (several US states, including Florida) beginning the first phase of reopening plans on Monday, while millions of Italians will return to work this week; Investors believe there will be an increase in demand.
“The reopening of economies has injected some cautious optimism into an oil market that fell to record lows just a few weeks ago,” RBC analyst Michael Tran said in a note to clients on Tuesday.
“There is reason to believe that the worst of the destruction of demand is behind us. Comments from various companies pointed to an improvement in demand in the United States in late April, particularly for gasoline,” added Stacey Morris, director of Alerian’s investigation.
The improvement in the demand outlook occurs when producers have reduced production, which has also supported prices. The historic cut of OPEC and its oil-producing allies, which disconnects 9.7 million barrels per day, went into effect on May 1. Norway and Canada have also slowed production.
In the United States, data from the Energy Information Administration showed that weekly production averaged 12.1 million bpd for the week ending April 24, roughly 1 million bpd below historical March highs. Exxon, Chevron and ConocoPhillips are among the companies that have cut production in the face of falling prices.
However, the recent strength of oil hardly takes its toll on its historic decline. Both WTI and Brent are firmly in a bear market, falling 68% and 62%, respectively, from their 52-week high levels. The decline has also been rapid: WTI’s 52-week high of $ 65.65 is since Jan. 8.
And traders warn that the path to recovery in oil prices will be long and uncertain. Even with global producers downsizing, global storage is filling up fast, and some believe that tank tops could be reached in a matter of weeks.
“The road to recovery in oil demand in the United States and around the world is still up in the air,” Morris said.
And Nysveen believes that “the market is still vulnerable.”
“The existing problems were not magically resolved, the storage constraint is still there … We remain very cautious in the short term, but our view is that we will see a price recovery in the long term,” he added.
