DTN Oil

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures and the Brent contract on the Intercontinental Exchange are rallying early Friday, with the nearest delivered contracts up 10% so far this week. Oil products futures have notched fresh multi-week highs amid increasing evidence the U.S. economy is growing again, with the worst of the economic damage caused by the government lockdown now believed to be in the past, while the storage trade unwinds as calendar spreads flatten.

Surging retail sales in the United States while first-time claims for unemployment insurance again declined as states have either fully reopened or continue to phase in business re-openings have imbued sentiment that the sudden and intense plunge into economic contraction is giving way to recovery. This view was hailed by the White House Thursday, with White House economic adviser Larry Kudlow saying he expected the losses incurred over the past two quarters to be recovered by the first quarter 2021. The U.S. economy entered recession in February.

Extensive emergency payments to individuals and businesses by the federal government are seen to have countered the sharp contraction caused by government closure of the economy and a view has emerged that since the economic contraction was so sudden, deep and self-inflicted, the recovery should be quick and robust. Others note while U.S. retail sales surged nearly 18% in May, they remain at a three-year low, while continued unemployment claims remain over 20 million for the seventh consecutive week through June 6, the highest level on record dating back to 1967.

More stimulus efforts were discussed this week by the White House, while the U.S. House of Representatives is pushing a $1.5 trillion infrastructure plan. Federal Reserve Chairman Jerome Powell reiterated the central bank's ongoing support for the economy in testimony before both chambers of Congress this week, with the Fed to hold the federal funds rate near zero while continuing to expand its asset purchases, announcing on Monday it would begin buying U.S. corporate bonds.

The OPEC+ compliance committee met Thursday, co-chaired by the energy ministers of Saudi Arabia and Russia, noting nothing short of full compliance with their April 12 production agreement is acceptable, with OPEC reaching 87% compliance with the agreement in May. Iraq and Kazakhstan presented a plan to the committee on how they would catch up on their obligations in July, August and September, with the committee giving Nigeria and Angola until Monday, June 22, to present their plan.

The International Energy Agency this week projected world oil supply would plummet 7.2 million barrels per day (bpd) this year amid the OPEC+ cuts and sharp reductions in North American output, while global oil demand is expected to fall 8.1 million bpd. In 2021, the Paris-based agency expects a 5.7 million bpd recovery in global oil consumption while production is expected to increase only 1.7 million bpd.

Gasoline demand is increasing in Asia according to a Reuters report, indicating the remaining gasoline supply held in floating storage off Singapore is being unloaded. IEA reported global floating storage declined by 6.4 million bbl in May from a record high of 172.2 million bbl in April.

That trend should continue as the March-April contango trade unwinds, with the prompt Brent spread trading near parity and the six-month calendar spread is at roughly $0.50 per barrel (bbl), tightening from a $13.66 bbl extreme in closing out the first quarter.

ICE August Brent is up $0.80 near $42.30 bbl, while NYMEX July West Texas Intermediate futures are $1 higher near $39.85 bbl, with August delivery trading at $40 bbl ahead of Monday's expiration the July contract.

NYMEX July RBOB futures reached a fresh 15-week high on the spot continuous chart at $1.2888 gallon overnight, trading up $0.0130 near $1.2705 gallon at last look, with the forward curve backwardated ahead of the first day of summer Saturday. July ULSD futures gained $0.0225 to $1.2211 per gallon, trading near a $1.2278 14-week spot high.

Brian L. Milne can be reached at brian.milne@dtn.com

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