Oil Futures Surge on Demand Optimism

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures surged Tuesday, with nearest delivery West Texas Intermediate futures and Brent crude on Intercontinental Exchange rallying in afternoon trade. Both crude benchmarks reached their highest settlements in 2 1/2 weeks amid optimism that a gradual reopening of major economies in Asia, Eurozone and the United States would imminently boost oil demand globally.

Investment Bank Goldman Sachs estimates oil demand has risen 2.5 million barrels per day (bpd) from the slump in early April, driven mostly by a rebound in the Chinese economy over the last month. Goldman Sachs economists forecast demand recovery would follow a three-stage rebound in the global economy, beginning with "violent rebalancing" in the second quarter before fundaments slowly return into balance by the year's end.

"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," said Per Magnus Nysveen at energy consultancy Rystad Energy.

Domestically, traffic data shows vehicle movement across the United States has already moved off its lows.

On the session, NYMEX June WTI futures surged $4.17 to $24.56 per barrel (bbl) and the international Brent crude benchmark July contract moved up $3.77 to $30.97 per bbl. NYMEX June ULSD futures spiked 9.29 cents for a $0.8960 per gallon settlement, and June RBOB futures advanced 7.98 cents to $0.9013 per gallon.

Tuesday afternoon, traders also positioned ahead of weekly release of supply data from American Petroleum Institute due out 4:30 p.m. EDT, followed by official figures from U.S. Energy Information Administration. Markets forecast crude oil stocks increased 8.9 million bbl during the week ended May 1, similar to the previous week. Refinery run rates expected to have increased 0.4% on week. Gasoline supply is likely to have fallen 1 million bbl and distillate fuel stocks build by 2.8 million bbl on the week.

The improving demand outlook comes as Organization of the Petroleum Exporting Countries, Russia and allied producers agreed to scale back collective output by 9.7 million bpd beginning May 1. Saudi Arabia, OPEC's de-facto leader, is seen to reduce its crude exports to a decade-low 6 million bpd in May, according to industry sources. Asia is projected to account for 4 million bpd of that total and the United States seen to import less than 600,000 bpd.

Separately, the three-person Texas Railroad Commission on Tuesday ruled out mandating oil production cuts in the Lone Star state, ending a month-long debate on whether to curtail state output for the first time in 50 years. Texas is the largest U.S. oil-producing state, pumping about 5.4 million bpd of crude. Last year, the state's output rose by 600,000 bpd to about 41% of the nation's total. Commissioners instead voted in favor of loosening regulations, waiving fees and expand oil storage facilities to support the state's industry.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges