Oil headed for the longest run of daily gains in more than nine months as the impact of production cuts indicated the glut may be beginning to ease.
Futures in New York rose for a fifth day after Genscape reported an increase in inventories of only 1.8 million barrels at Cushing, Oklahoma, the delivery point for West Texas Intermediate crude. That would be the smallest weekly gain since mid-March if confirmed by official data due Wednesday. Meanwhile, the discount on oil for June delivery relative to July narrowed to the least in a month, signaling that concerns of oversupply may be abating.
The American oil benchmark has doubled from an intraday low near $10 a barrel last week as OPEC and its allies start reducing production. In addition, U.S. giants Exxon Mobil Corp., Chevron Corp. and ConocoPhillips plan combined curbs of as much as 660,000 barrels a day by the end of June, despite a Texas regulator pronouncing an effort to mandate output cuts dead on arrival.
There are early signs that the plunge in demand caused by the spread of the coronavirus might have bottomed out in some markets, although clearing the glut that’s built up in recent months will take time. European oil major Total SA said Tuesday that demand remains well below supply, even with widespread output cuts. But Norwegian bank DNB ASA sees change coming.
“We are currently seeing accelerating oil-production curtailments outside the OPEC+ countries,” said DNB analyst Helge Andre Martinsen. “Even though the oil-market balance still looks quite oversupplied in the very short-term, we believe this is about to change quite quickly.”
In a sign of the mammoth task ahead, crude supplies from the Middle East soared to their highest level since at least January 2017 last month. Saudi Arabia, Iraq, Kuwait and the U.A.E., which account for about 70% of OPEC’s production, shipped a combined average of 18.9 million barrels a day of crude and condensate in April, tanker-tracking data compiled by Bloomberg show. That’s 2 million barrels a day more than revised March levels.
In oil options markets, sentiment is starting to improve. The premium of bearish put options over bullish calls is heading for its smallest close since early March, a sign of diminished pessimism among investors.
©2020 Bloomberg L.P.
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