Home > Markets > Commodities > Oil prices jump as demand shows signs of picking up

NEW YORK : Oil prices rose on Friday, with U.S. crude jumping more than 7% to its highest since March on signs that demand was picking up, with China reporting increased refinery runs and rounding out a week of bullish news on the supply front.

West Texas Intermediate (WTI) oil was up $2.02, or 7.4%, at $29.58 a barrel at 2:19 p.m. EST (18:19 GMT), after hitting a session peak of $29.92, its highest since mid-March. WTI soared 9% in the previous session.

Brent crude was up $1.45, or 4.6% at $32.58 a barrel. Brent rose nearly 7% on Thursday.

Both contracts were on track for a third consecutive week of gains.

The second-month contract for U.S. crude traded at a discount to the first month for the first time since late February, implying market tightness, said Bob Yawger, director of energy futures at Mizuho in New York.

"It is no accident the spread switched after EIA crude oil storage, and storage at the NYMEX delivery site at Cushing, both posted up their first storage draws in weeks in Wednesday’s storage report," he said.

Amid supply cuts by the Organization of the Petroleum Exporting Countries and other major producers aimed at reducing a glut, there also are signs of improving demand. Data showed China's daily crude oil use rebounded in April as refineries ramped up operations.

Still, the market remained cautious with the coronavirus pandemic far from over and new clusters of infection emerging in some countries where lockdowns have eased.

"Oil prices have been up significantly since yesterday thanks to a better assessment of the situation by the International Energy Agency (IEA)," Commerzbank said in a note.

The IEA expects global crude inventories to fall by about 5.5 million barrels per day (bpd) in the second half of this year.

It also expects oil demand this year to fall by 8.6 million bpd, which is a smaller decline - by 690,000 bpd - than it forecast last month. It expects non-OPEC supply to fall by 3.2 million bpd.

Barclays raised its forecasts for Brent and WTI by $5-$6 a barrel for 2020 and by $16 a barrel for 2021. It now sees Brent prices averaging $37 a barrel and WTI at $33 this year. For 2021, the bank expects Brent and WTI prices to average $53 and $50 per barrel, respectively.

"The sheer size and speed of the disruption and associated inventory overhang will take time to get fully absorbed, in our view," Barclays analyst Amarpreet Singh said in a note.

Meanwhile U.S. crude inventories fell unexpectedly for the first time since January, the Energy Information Administration said on Wednesday.

On the production side, record cuts of nearly 10 million bpd by OPEC and associated producers - collectively known as OPEC+ - have kicked in for May and June, with Saudi Arabia, Kuwait, and the UAE pledging to cut beyond their commitments.

Oman said on Friday that it is considering cutting output further in June as well.

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