Oil rally stalls with Fed warning countering production cuts
NEW YORK: Oil steadied after a four-day gain as investors weighed signs the market is rebalancing against what’s still a precarious economic outlook.
Futures in New York for July delivery edged above US$32 a barrel after the June contract closed at a 10-week high as it expired. Federal Reserve chairman Jerome Powell warned Americans could start losing their homes and that long-term unemployment could damage the economy. A report that a virus vaccine study that boosted assets earlier in the week didn’t produce enough critical data to assess its success added to the cautious tone.
Still, the oil market is in much better shape than it was a month ago as output cuts have kicked in and pockets of demand have emerged. There was no repeat of last month’s plunge below zero when the West Texas Intermediate (WTI) contract rolled over, with the June futures trading at a premium to July before they expired, suggesting concerns the United States would run out of storage have eased.
Oil has rebounded almost 70% this month as supply and demand have started to rebalance, with Citigroup Inc saying the current crude surplus will turn into a deficit next quarter. Chinese oil consumption is almost back to pre-virus levels, while gasoline is benefiting across the world as commuters avoid public transport and deliveries of food and other items surge.
“We’re a little surprised at how quickly oil prices have bounced back in the past month,” said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia. There’s potential for prices to stay at these levels in the next month or perhaps go slightly higher if stockpiles decline, he said.
WTI for July delivery added 0.5% to US$32.11 a barrel on the New York Mercantile Exchange as of 12:09 pm in Singapore after rising 1% in the previous session. The June contract finished up 2.1% at US$32.50 as it expired on Tuesday. Brent for July settlement rose 0.8% to to US$34.92.
In more evidence the supply response to the virus is gathering pace, the American Petroleum Institute (API) reported stockpiles at the storage hub at Cushing, Oklahoma, fell by 5.04 million barrels last week, people familiar with the data said. US crude inventories dropped by 4.84 million barrels, the API said.