Oil back at pre-u.s. lockdown level on Chinese demand rebound

OLIVIA RAIMONDE and ALEX LONGLEY

Oil soared to levels not seen since COVID-19 lockdowns paralyzed wide swaths of the world’s largest economy as Chinese transport and factories emerged from months of stagnation.

Futures in New York climbed as much as 11.8 per cent. Chinese oil use is at 13 million barrels a day, just shy of the levels of a year earlier, traders and executives said.

The dramatic turnaround, combined with output cuts by major producers, is a strong signal that the market is starting to recover from an unprecedented collapse in demand and massive oversupply that forced prices below zero for the first time ever last month.

“If China can get back to PRECOVID demand levels, and China is at least, from a virus standpoint, about two months ahead of everybody else, then the oil market is interpreting that as there is light at the end of the tunnel for us too,” Stewart Glickman, energy equity analyst at CFRA Research in New York said, referring to U.S. demand.

American shale drillers reduced rigs to the least in more than a decade and Russia pledged strict compliance with the record OPEC+ cuts. Saudi Arabia didn’t give extra volumes of oil to three Asian customers who asked for it, according to refiners.

“Producers are significantly throttling back output and with demand increasing the market is on a slow path toward recovery,” said Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy.

It’s not just China that’s seeing a recovery in consumption. Indian diesel sales were 75 per cent higher during the first half of May, compared with a month earlier.

U.K. road fuel use has risen this month and is increasing every week, according to Brian Madderson, chairman of the Petroleum Retailers Association.

At the same time, OPEC+ oil shipments have seen a “stunning reversal” in May, according to market intelligence company Kpler.

Exports have fallen by 6.4 million barrels a day so far this month, it said.