Oil Climbs to Six-Week High With Demand Optimism Spurring Rally – Yahoo Finance
(Bloomberg) — Oil rose to a six-week high as signs of strengthening demand from the U.S. to China stoked optimism that key markets are turning a corner in their recovery from the pandemic.
U.S. benchmark crude futures surged as much as 2.5% on Thursday to the highest intraday level since March 15, before easing alongside U.S. equities off session highs. New York City aims to fully reopen July 1, while U.K. road fuel sales are nearing last year’s summer levels. Consumption may also get a boost when China breaks for an extended holiday on Saturday, with mobility expected to climb to a record.
“Oil has a lot of tailwinds here,” said Bob Yawger, head of the futures division at Mizuho Securities. “With the rebound here in the U.S., Europe starting to pick up and strength in China, we’re going to have the three largest economies on a ripper.”
Oil prices were coiled in a narrow trading range in recent weeks amid concerns that the resurgent pandemic in countries such as India, Brazil and Japan may delay a return to normal demand worldwide. India has been hit particularly hard by a second wave that’s pummeled fuel consumption, prompting some refiners there to consider boosting exports in a bid to avoid deep cuts to crude processing.
But commodities across the board have gained in recent sessions as countries at the forefront of the global economic rebound revive interest in assets that will gain from further reopening efforts and inflation. The Federal Reserve on Wednesday strengthened its assessment on the U.S. economy and reaffirmed aggressive policy support.
At the same time, U.S. jobless claims fell last week to another fresh pandemic-era low, providing the latest sign that the job market in the world’s largest oil-consuming country is on the mend.
“Demand will be zooming back in the U.S. 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.”
The market recovery is flowing through to big oil companies. Royal Dutch Shell Plc’s profit rose more than expected in the first quarter, while Total SE also had a strong start to the year. U.S. refiners have been inching up production ahead of the summer driving season. PBF Energy said it expects to run at higher rates in the second quarter, pointing to U.S. gasoline consumption already at 95% of normal levels and higher overall fuel demand.
See also: Big Oil Revives Pre-Pandemic Levels of Cash Flow and Profit
Higher daily U.S. airport foot traffic and airlines adding more flights are point to a summer travel season that may be “significantly more robust” than is being priced in, Bank of America Global Research said in a report.
“Taken together, we believe these signals affirm that an eventual recovery in demand is a question of ‘when’ not ‘if,’ with risks that the pace may be quickening even versus very bullish GDP growth estimates,” analysts including Doug Leggate and Kalei Akamine wrote.
Still, Covid-19 hotspots do pose some short-term risks to a sustained price rally and are starting to show 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. Differentials for U.S. sour crudes fell to their weakest in at least two weeks on weaker demand from Indian refiners.