A good day for oil futures which ended sharply higher on Tuesday as investors punted that the worst was overproduction is slowing and demand is expected to rise as lockdowns ease around the US and in other economies.
“As more economies start to reopen, crude oil finds itself in the opposite situation of where it has been, as the forces which drive the price collapse—falling demand and a failure to cut production—start to reverse into a situation of potentially recovering demand and falling production,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a daily note.
West Texas Intermediate crude for June delivery on Nymex, rose $US4.17, or 20.5%, to settle at $US24.56 a barrel, after a 3.1% rise on Monday. The settlement was the highest for a most-active contract since April 17 and marked a fifth consecutive session gain.
In Europe global benchmark July Brent crude added $US3.77, or 13.9%, to $US30.97 a barrel after Monday’s 2.9% gain.
Data tonight on US oil production and stocks from the US Energy Information Administration will test the newfound optimism of the market about the outlook for oil.
Traders are now punting on the agreement between OPEC and its allies, to cut output by 9.7 million barrels a day in May and June officially that began on May 1.
More and more US companies have also announced plans for voluntary output reductions, including ConocoPhillips, Chevron, Exxon Mobil, and a host of smaller groups operating in the various shale basins such as the Permian in Texas and New Mexico.
The current bullishness wasn’t impacted by a ‘no’ vote for production controls from the Railroad Commission of Texas. It regulates the state’s oil and gas industry, on Tuesday rejected a proposal to pro-ration, or curtail Texas crude-oil supplies. At a meeting last month, Commissioner Ryan Sitton had proposed a state cut of 20%, or about 1 million barrels a day, under certain conditions. That was rejected.
“The existing problems did not magically get resolved, the storage constraint is still there, but a couple of weeks away, so we will see its effect on prices soon, as the market will get tight,” wrote Magnus Nysveen, head of analysis at Rystad Energy, in a Tuesday research note.
The build-up of crude stocks is slowing, analysts said, and that perception has allowed optimism to seep back into the crude market as efforts to rebalance the oil market are underway.
“The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise,” wrote Nysveen.
Comex gold futures fell on Tuesday to register the first loss in three sessions, with prices dragged down by optimism about the easing of business lockdowns in the US and Europe and hopes for the speedy development of a vaccine.
Against that backdrop, June gold futures lost $US2.70, or 0.2%, to settle at $US1,710.60 an ounce, following gains in the two previous sessions.
Meanwhile, Comex July silver picked up 31.4 cents, or 2.1%, at $US15.11 an ounce, following a nearly 1% drop on Monday. July copper added 2 cents, or 0.9%, at $US2.3325 a pound, after ending virtually flat on Monday.
Meanwhile, iron ore prices were unchanged on Tuesday at $US84.04 for the 62% Fe fines delivered to northern China, according to the Metal Bulletin.
