London
Oil posted its biggest monthly advance on record, just a few weeks after prices made a dramatic plunge below zero.
Crude surged about 88% in May, with US futures on Friday rising above $35 a barrel for the first time since March, driven by massive supply curbs by producers across the world. Still, prices are well below levels at the start of the year, and demand that was crushed by the coronavirus crisis may need to show a sustained improvement for the rally to extend further.
For now, the outlook for consumption looks bleak, though it’s on the mend. While virus-related lockdowns are easing, demand isn’t yet roaring back in the US. Fuel sales that were clobbered in European nations such as Spain and Italy will take time to recover. China is a bright spot, but the rest of Asia is still struggling.
The number of rigs drilling for oil in the US fell for the eleventh week, stemming the massive glut of crude that flooded the market. Yet there’s a risk that oil’s advance could tempt producers to turn on their taps again.
“At the end of the day, what is driving everything is fuel demand,” said Tom O’Connor, senior director of petroleum markets at global consultancy ICF. “There is going to be an underlying depression in demand that is going to be there for some time.”
US crude futures fluctuated Friday, as Federal Reserve chairman Jerome Powell defended aggressive action to shield the economy as the coronavirus pandemic took hold. Prices surged at the close, with West Texas Intermediate oil settling 5.3% higher at $35.49 a barrel, after falling as much as 4% earlier in the day.
Futures posted the biggest monthly jump in data going back to 1983. Brent crude for July, which expired on Friday, rose 4 cents to $35.33, closing below WTI for the first time since 2016. The global benchmark has rallied almost 40% this month. The more active August contract rose 5% to settle at $37.84.
As the fallout from crude’s historic plunge continues, the Securities and Exchange Commission and the Commodity Futures Trading Commission have both opened probes into the $4.64bn United States Oil Fund ETF. As China’s demand recovery outpaces the rest of Asia, falling fuel exports from the refining giant are providing a much-needed buffer for other processors in the region still grappling with lowered consumption and poor margins.—Bloomberg
