Oil reaches 2.5-month high on hopes of demand rebound

Global benchmark Brent crude oil gained more than one percent on Thursday to reach its highest level since March, supported by lower United States crude inventories, OPEC-led output cuts and recovering demand as governments ease coronavirus restrictions on people’s movements.

Brent rose 34 cents, or 1 percent, to settle at $36.09 per barrel. US West Texas Intermediate crude closed up 43 cents, or 1.28 percent, to $33.92.

Brent dropped to a 21-year low below $16 a barrel in April as governments ordered businesses to shutter and millions to stay home, collapsing demand for oil. With those restrictions slowing being lifted, demand for fuel is on the rise. The recovery in price is also led by oil-producing countries reining in production to tackle supply glut. Since then, Brent has more than doubled.

“It’s not that demand rose more than expected; it is up indeed but not to an extent to singlehandedly absorb all supply. It’s that production has indeed fallen by a great margin,” said Paola Rodriguez-Masiu, senior oil market analyst at Rystad Energy. 

US crude inventories fell five million barrels last week, according to the US Energy Information Administration (EIA). Analysts say those numbers may inspire production to pick back up. 

“The rally in the crude futures is beginning to approach levels in which US shale production declines will begin to slow and possibly reverse as low-cost producers attempt to generate revenue,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

There is also evidence of recovering fuel use.

Top US airlines and Air Canada on Tuesday reported slower ticket cancellations and an improvement in bookings on some routes, though executives said overall demand remained weak.

But data from the US Department of Labor on Thursday revealed another 2.4 million Americans filed for jobless benefits last week, which will affect gasoline demand, according to John Kilduff, partner at Again Capital LLC in New York City.

“We’re seeing gains consolidate somewhat after another week of bad economic data in the United States,” said Kilduff.

The Organization of the Petroleum Exporting Countries, Russia and other allies, known as OPEC+, agreed to cut supply by a record 9.7 million barrels per day (bpd) from May 1.

So far in May, OPEC+ has cut oil exports by about 6 million bpd, according to companies that track the flows, suggesting a strong start in complying with the deal. OPEC says the market has responded well.