Oil prices firm on new demand and lower US crude stockpiles

London — Oil prices firmed on Wednesday on signs of improving demand and a drawdown in US crude inventories, but worries over the economic fallout from the coronavirus pandemic and weak refining margins capped gains.

Brent crude futures were up 51c, or 1.47%, at $35.16 per barrel at 9.28am GMT. US West Texas Intermediate (WTI) July crude futures were up 22c, or 0.69%, at $32.18 a barrel.

The WTI June contract expired on Tuesday at $32.50 a barrel, up 2.1%, avoiding the chaos of last month’s May expiry, when prices sank well below zero.

US crude inventories fell by 4.8-million barrels to 521.3-million barrels in the week to May 15, data from the American Petroleum Institute (API) showed on Tuesday.

Refinery runs rose by 229,000 barrels per day (bpd), the API said, indicating plants are trying to produce more fuel as the US eases its lockdowns.

Official data from the Energy Information Administration (EIA) is due later on Wednesday.

“Fundamentals in the market are improving, thanks to supply cuts and recovering demand,” ING said in a note.

Easing of lockdown restrictions worldwide are boosting demand for fuels, while initial shipping data shows that compliance with oil production cuts from oil cartel Opec and its allies (Opec+) has been strong so far. But weak crude refining profits persist, which could delay a recovery in oil demand.

“We would need to see strength in refinery margins to persuade refiners to increase utilisation rates, but at current levels there seems little incentive for them to do so, with many regions still seeing negative margins,” ING said.

Refiners are pinning hope on easing of lockdowns boosting petrol demand.

Lingering concerns about the economic fallout from the coronavirus pandemic, especially in the US which is the world’s biggest oil consumer, kept a lid on further gains.

US Federal Reserve chair Jerome Powell said on Tuesday that layoffs by state and local governments will slow the US economic recovery.

Reuters