DTN Oil

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Tuesday's session higher alongside rallying equity markets, underpinned by optimism about easing lockdown restrictions and news of progress towards the development of a vaccine, sparking appetite for the risk-on trade.

Wire services indicate there are now ten coronavirus vaccines in clinical trials and over 100 in pre-clinical evaluation, with biotech companies like Moderna and Novatex having begun "Phase 2" testing involving large human samples. Stocks on Wall Street surged Tuesday on hopes one of those vaccines would be successful to intercept the deadly pathogen that has killed over 300,000 people worldwide. As New York Stock Exchange reopened Tuesday amid cheers and applauds, Dow Jones Industrials spiked over 700 points and S&P 500 broke above 3,000 in midsession trade, extending its recent rally into a holiday shorted week.

In oil markets, afternoon reports indicate Russian oil companies are now in discussions to extend their participation in an agreement between Organization of the Petroleum Exporting Countries and nine allies to hold back 9.7 million barrels per day (bpd) in production beyond June. Under terms of the deal, producers were set to lower the total amount of cuts to 7.7 million bpd from June through the end of the year. Russia's Energy Minister Alexander Novak, however, indicated this week's oil market is still oversupplied by 7 million to 12 million bpd even as global supplies dropped by an estimated 14 million to 15 million bpd in large part thanks to the global agreement. It remains highly unlikely Russian oil companies would downgrade their cuts given the market is only now seen to have headed for a tentative rebalance in the next two months.

Accelerated production cuts coincide with faster-than-expected recovery in global demand for transportation fuels, led mainly by China and the United States, although U.S. consumption of distillate fuels is lagging with many factories remaining closed. There are divergent views on the path of economic recovery ahead of us, but most analysts agree the growing unemployment figures and persistent challenges for leisure industry and air travel would cap the upward momentum.

St. Louis Federal Reserve Chairman James Bullard said Monday the economy has passed the initial shock from coronavirus pandemic but warned more pain is still ahead, with economic growth likely to contract by 40% in the second quarter before stabilizing in the fourth quarter.

"I see the unemployment rate under double digits by the end of year," said Bullard.

If economic recovery is indeed realized, it would lead to a sharp rebound in global oil demand to the levels exceeding those of pre-pandemic, according to International Energy Agency Chief Fatih Birol.

"Behavioral changes in response to the pandemic are visible but not all of them are negative for oil use. American business consultants using Zoom will not compensate for 150 million new urban residents in India and Africa traveling, working in factories and buying products transported by trucks, Birol said.

At settlement, West Texas Intermediate July futures surged $1.10 to $34.35 barrel (bbl), a 12-week high settlement on the spot continuous chart, and the International crude benchmark Brent July contract gained $0.64 at $36.17 bbl, inching towards last week's $36.98 ten-week spot high.

NYMEX June ULSD futures settled 0.88 cents higher at $0.9908 gallon, paring an advance from a $1.0340 nearly seven-week spot high, and NYMEX June RBOB futures climbed 1.07 cents to settle at $1.0489 gallon, with initial resistance at last week's ten-week spot high $1.0888 gallon.

Liubov Georges, 1.646.359.4088, liubov.georges@dtn.com, www.dtn.com

Liubov Georges