Oil Higher in Tuesday Trade

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on New York Mercantile Exchange and Brent crude on Intercontinental Exchange continued higher early Tuesday to begin a holiday-shortened week of trade as investors gauge reopening plans in the world's major economies, with Japan being the latest country to lift emergency orders, spurring hope for an imminent recovery in global fuel demand.

International Energy Agency Executive Director Fatih Birol said Monday global oil consumption has yet to reach to its peak and likely to exceed the pre-pandemic level next year and beyond as more consumers opt for personal vehicles instead of public transportation.

"Behavioral changes in response to the pandemic are visible but not all of them are negative for oil use. If there's a strong economic recovery, 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.

Bullish remarks coincided with the latest traffic data from Apple Maps Tracker, indicating vehicle mobility in the United States jumped to pre-lockdown levels over the Memorial Day weekend. This marked a staggering gain of nearly 90% since the slump a little more than four weeks ago. All 50 states now have at least partially lifted "stay-at-home" orders and allowed for some nonessential businesses to open their doors.

Last week, U.S. President Donald J. Trump said the country would not go into another lockdown even if pandemic intensifies again in the fall-winter flu season.

Internationally, Japan became the latest country to lift its emergency orders and Britain said all retail stores can start operating on June 15. Germany is set to further lift coronavirus restrictions in several regions in the coming days.

The string of reopenings coupled with accelerated cuts from global producers would eventually lead to an oil market rebalance that some believe may come sooner than later. Russian Energy Minister Alexander Novak sees the global oil market rebalancing in the next two months, with global supplies having dropped by 14 million to 15 million barrels per day (bpd) in the most recent weeks.

"For now, the surplus stands at around 7 million to 12 million barrels per day. This has coincided with an estimated 20% recovery in demand this month compared with April, he said.

The Russian official also estimated output curbs by North American producers reached 3.5 to 4 million bpd this month. Baker Hughes reported Friday another large weekly decline in the number of active U.S. oil rigs, down 21 rigs during the week-ended today to 237, the fewest rigs in operation in the United States since July 2009. OPEC Secretary General Mohammed Barkindo warned, however, global producers must remain committed to their production cuts despite signs the market is moving to rebalance.

In financial markets, U.S. equities surged in premarket activity Tuesday, with Dow Jones Industrials set to gain over 500 points and S&P 500 up 0.24% spurred by early signs of successful vaccine developments.

Moderna, Novavax and Oxford have all reportedly started human trials on their experimental vaccines, with Centers for Disease Control and Prevention Director Dr. Anthony Fauci for the first time expressing optimism vaccine could be indeed achievable by year's end.

In early trading, West Texas Intermediate July futures advanced $0.83 to trade above $34 per barrel (bbl) and the international crude benchmark Brent July contract gained $0.55 at $36 bbl, inching towards last week's $36.98 ten-week spot high.

NYMEX June ULSD futures rallied 3.35 cents to $1.0155 gallon, trading near last week's five-week spot high $1.0286 gallon, and NYMEX June RBOB futures advanced 2.35 cents to $1.0617 gallon, with initial resistance at last week's 10-week spot high $1.0888 gallon.

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

Liubov Georges