Oil Logs Big Weekly Gain Ahead of Contract Expiration - The Wall Street Journal

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Roads are crowded again in Beijing, shown Tuesday. Fuel demand is set to keep rising,... — Roads are crowded again in Beijing, shown Tuesday. Fuel demand is set to keep rising, driving some nascent optimism in energy markets.
Photo: greg baker/Agence France-Presse/Getty Images

Updated May 15, 2020 3:12 pm ET

Oil prices rose Friday, continuing a recent rebound with global fuel demand starting to rise as the world reopens for business.

Most actively traded U.S. crude futures for July delivery rose 5.9% to $29.52 a barrel. Prices have risen from a 21-year low of $11.57 hit last month with oversupply fears easing. Front-month U.S. crude futures for delivery next month advanced 6.8% to $29.43 a barrel.

Traders were looking ahead to the expiration of that front-month U.S. crude contract on Tuesday after chaos around expiration last month pushed the front-month price below $0—a first in oil-market history.

When such contracts expire, the holders must either sell them or take delivery of oil in Cushing, Okla. On April 20, the front-month oil contract for May delivery was a day away from expiration. Whoever was holding it likely couldn’t find available storage because of the glut, forcing them to sell and driving prices to minus $37.63 a barrel.

Following the turmoil, large exchange-traded funds have shifted their holdings so they no longer own as many near-dated futures. Each month, the ETFs like the United States Oil Fund —the biggest oil ETF—would have to sell those near-dated futures before expiration and buy the next month’s contract. That process is called “rolling” and roiled the market last month.

Analysts say the U.S. Oil Fund changing its structure has helped stabilize crude markets. Still, many want to see an uneventful expiration of the June futures next week before suggesting that the peak of the oil storage crisis has passed.

Other positive signs lifting crude include a recent decline in stockpiles in the U.S. and China and plunging supply around the world as producers respond to ultralow prices. As lockdown measures designed to stop the spread of the new coronavirus are lifted, fuel demand is set to keep rising, driving some nascent optimism in energy markets.

“The rebound has come a little faster than we expected,” Bank of America analysts said in a note.