Oil prices rose early on Tuesday as market participants believed that improving demand and more supply coming off would ease the glut faster than expected.
As of 10:37 a.m. EDT on Tuesday, WTI Crude was up 2.44 percent at $34.08, and Brent Crude was trading at $35.77, up by 0.90 percent on the day. By afternoon, prices had slipped back, with Brent trading down on the day at $35.49.
The more bullish market sentiment of the past few weeks has been supported by the production cuts from the OPEC+ group and from economics-driven curtailments, especially in North America. OPEC’s heavyweights, including Saudi Arabia, the United Arab Emirates (UAE), and Kuwait, have pledged more cuts on top of those they have promised in the deal, and even Russia is said to have been really trying to comply with the OPEC+ agreement this time, unlike in previous pacts.
A comment from Russia’s Energy Minister Alexander Novak on Monday also lent support to oil prices, as the minister said he sees the oil market rebalancing by July.
On the demand side, eased lockdowns in the U.S., Europe, and India also point to improving demand for oil, at least for road transportation.
India’s fuel demand, which had crashed by 60 percent during the early days of its two-month lockdown, is set to reach pre-coronavirus levels in June, Indian Oil Minister Dharmendra Pradhan told Times of India over the weekend.
The litmus test for demand recovery after a lockdown—China—is showing signs of a rebound, according to IHS Markit. In April, China’s oil demand reached 89 percent of the demand from April last year, while oil demand is expected to reach 92 percent of the prior-year level in May, the consultancy said.
In the week to May 19, hedge funds and other money managers kept strong buying interest in WTI Crude, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Monday, commenting on the latest weekly Commitments of Traders report.
“Seven consecutive weeks of buying has resulted in bullish WTI bets rising almost three-fold to 348k, a 20-month high, while Brent buyers have only added 102k lots to 158k. While not yet overly stretched, the amount of buying has left the market exposed should the technical and/or fundamental outlook turn less friendly,” Hansen said.
By Tsvetana Paraskova for Oilprice.com