Oil trades near five-week high as US debates lockdown exit

Bloomberg

Oil traded near a five-week high as investors weighed the nascent recovery of demand against concerns about a resurgence in coronavirus cases if lockdowns are relaxed too early.
The head of the International Energy Agency (IEA) said oil use will be below pre-coronavirus levels for at least a year, highlighting the depth of the collapse in consumption. The top infectious disease official in the US said states reopening too quickly could hurt an economic recovery. Futures in New York dropped as much as 2.8%,
before paring those losses.
Though a fresh wave of virus cases would threaten a fragile recovery, there are some bright spots emerging in the physical oil market. Chinese refiners have bought Brazil’s Lula crude at a premium to the global Brent benchmark versus a discount of about $6 a barrel a few weeks ago, while Russia’s Urals crude hit a nine-month high on Tuesday. An industry report showed a decline at the key US storage hub last week.
Oil is still down almost 60% this year as the coronavirus outbreak cripples consumption. The US cut its forecasts for global petroleum demand this year and next, while consultant IHS Markit doesn’t see the market recovering to pre-virus levels until the second half of 2021. Still, producers are responding with Iraq reducing contractual supplies to its customers and Saudi Arabia cutting output deeper.
“The tug-of-war between Opec-led cuts and virus anxieties will limit upside price potential,” said PVM Oil Associates analyst Stephen Brennock.
Stockpile builds in the oil market are slowing, and there are signs demand is returning in the big Asian economies of China and India, while in the US, gasoline consumption is increasing. In addition to reporting a decline in inventories at Cushing, Oklahoma, the API also said that gasoline stockpiles declined last week.
“We now have 23 states that are opening up their local economies, that represents roughly 40% of the gasoline demand in the US,” Energy Secretary Brouillette said in an interview with Bloomberg Television.