Slow and steady recovery as demand emerges from lockdown
Crude oil prices rose for the fourth consecutive week with signs of an easing supply surplus as a result of higher compliance with OPEC+ output cuts and the gradual lifting of coronavirus lockdowns globally. Brent crude rose to $35.12 per barrel as WTI also advanced to $33.25 per barrel. The spread between both grades narrowed to $1.87 per barrel, keeping US crude oil exports less competitive compared to Brent-related barrels. Even escalating tensions between the US and China over the pandemic did not dampen sentiment.
Oil prices now appear to be ticking higher, slowly but surely, giving market participants more confidence in an assured recovery. Commodities markets are behaving much differently in May than they did in March and April as the emergence of some economies from lockdowns has improved overall sentiment.
The latest Commodity Futures Trading Commission (CFTC) report highlights where speculators think the market is heading.
Long positions rose by 9,478 contracts to a total of 680,253. Each contract equates to some 1000 barrels.
This was the first increase in about a month.
Turning to the physical market, the production cuts undertaken by producers have had a big impact, especially as underlying demand has picked up in countries that are emerging from lockdown.
Despite some question marks hanging over economic growth in China, the country’s oil imports have recovered and are already close to pre-pandemic levels. China’s oil demand has rebounded to about 13 million barrels per day, which is close to the 13.4 million bpd level seen before the initial lockdown. This has allayed fears about a slower-than-expected economic recovery in China.