Oil prices rise as an easing of lockdowns drives fuel demand hopes

Oil prices saw some gains. The easing of lockdown measures across the world raised hopes for a fast recovery for the global demand for fuel. However, persistent oversupply in the market curbed gains.

Brent crude futures increased 0.3%, or 14 cents to $40.94 a barrel. The benchmark contract had dropped by $1.50 on Monday, closing a 7-day streak of gains.

WTI crude oil futures gained 0.7%, or 26 cents, to $38.45 a barrel, following a drop of $1.36 the previous day.

Michael McCarthy, a chief market strategist at CMC Markets, stated that Brent is holding very nicely above $40. There is talk among traders that the West Texas Intermediate will test that level soon too. 

Goldman Sachs, a leading global investment banking, securities, and investment management company, raised its forecasts for the oil price in 2020. 

The gain in crude oil prices was followed by the reopening of New York. The coronavirus outbreak has hit the city hardest, and it has been closed for about three months. News of reopening potentially spurred fuel demand.

Fuel demand is recovering gradually but steadily

The American Petroleum Institute industry group reported that, in the week of June 5, US crude inventories were estimated to have dropped by 1.5 million barrels.

Still, distillate inventories such as diesel and heating oil increased by 2.9 million barrels. 

Lachlan Shaw, the head of commodity research at National Australia Bank, stated that demand is recovering gradually but steadily. However, oversupply is still in massive excess. Therefore, OPEC and its allies need to hold in check those barrels entering the market.

The Organisation of the Petroleum Exporting Countries (OPEC), and its allies – Russia and other producers, known as OPEC+, came to an agreement on Saturday. They decided on a one-month extension of a record 9.7 million barrels per day production cut.

Still, Saudi Arabia declared that the kingdom and its allies, the UAE, and Kuwait, would not increase an additional 1.18 million barrels per day in cuts on top of the OPEC+’s July cuts.

Meantime, Libya’s National Oil Corporation, NOC, called to close its Sahara oil field soon after maintenance operations began as an “armed force” had entered the place.

Edward Moya, a Senior Market Analyst at OANDA, stated the oil market could quickly return to become deeply oversupplied. Thus, any threat to outputs should help stabilize commodity prices.