Oil rally runs out of steam after prices doubled over five days

Oil’s rally ran out of steam — after prices doubled over five days — as optimism that output cuts are easing the supply glut was balanced by trepidation over what promises to be a long and uncertain recovery.

Futures in New York were little changed near $25 a barrel in Asian trading after swinging between gains and losses earlier. Diamondback Energy and Parsley Energy Inc. became the latest US drillers to cut production in the country’s biggest shale fields, although they said they would consider restoring output if prices rose above $30.

OPEC+ began implementing 9.7 million barrels per day of production curbs on May 1, which along with some early signs of demand recovery has helped to ease fears the world will run out of storage space for crude and fuels. The supply glut has probably hit its apex, according to Morgan Stanley, though the market will likely remain oversupplied for several weeks.

While it’s possible the worst is over for oil markets, most analysts don’t see a rebound to pre-virus levels of consumption for at least a year, with some questioning if it will ever happen. The risk of a second wave of infections in the US as states reopen can’t be discounted, while deteriorating relations between Washington and Beijing may hamper the global recovery.

“A large part of the strength that we have seen over the past week has been driven by early signs of a demand recovery,” said Warren Patterson, head of commodities strategy at ING Bank NV in Singapore. “However, clearly we will need to see a substantial improvement in demand, along with supply cuts, in order to see the market continuing to trend higher.”

West Texas Intermediate for June delivery added 0.2% to $24.60 a barrel on the New York Mercantile Exchange as of 11:26 a.m. in Singapore after closing at the highest level in almost a month on Tuesday. WTI for June is now around $2 cheaper than for July, compared with more than $5 early last week suggesting concerns about over-supply have eased.

Brent for July settlement rose 0.1% to $30.99 a barrel on the ICE Futures Europe exchange. It jumped 14% on Tuesday to finish above $30 a barrel for the first time in three weeks.

Hedge fund Westbeck Capital Management, which posted its best ever month in April after being short oil prices in the front of the curve, said the bull case for crude is now “simply exceptional.” April demand losses were overestimated and shut-ins are happening faster than anticipated, the fund said.

US crude stockpiles rose by 8.44 million barrels last week, the American Petroleum Institute reported, according to people familiar with the data. That would be the smallest increase since the week through March 20 if confirmed by Energy Information Administration figures due Wednesday. Supplies at the storage hub at Cushing, Oklahoma, rose by 2.68 million barrels, the API said.

Crude’s price path “will be determined by the rate oil demand increases from its low in the second quarter, assuming this was the bottom,” said Victor Shum, vice president of energy consulting at IHS Markit. There’s a high level of uncertainty over the virus’s impact on the global economy, he said.

More oil-market news

• SK Innovation, South Korea’s biggest oil refiner, posted a record quarterly loss last quarter and sees weak fuel demand continuing in the current three-month period.
• Occidental Petroleum Corp. took a $1.4 billion writedown related to an investment in a pipeline affiliate, cut capital spending and withdrew its guidance for the year after a historic collapse in oil prices.
• Crude futures rose 8.7% to 249 yuan a barrel on the Shanghai International Energy Exchange as it opened after a five-day holiday.

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