Oil jumps 15% on day five of gains on recovery in demand and production cuts

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Oil prices surged on Tuesday as optimism over ongoing production cuts and renewed demand with the reopening of economies around the world pushed prices up.

West Texas Intermediate, the US benchmark, jumped 15.8%, or $ 3.22, to trade at $ 23.61 a barrel. The contract gained 3.08% on Monday – closing above $ 20 for the first time since mid-April – and is on track for its fifth consecutive day of gains for the first time since February. The international benchmark Brent was trading 10% at $ 29.80 a barrel, and is also preparing for its fifth consecutive positive session.

“One thing is clear, the bottom demand is behind us, and this is reflected in the rising oil prices,” said Per Magnus Nysveen, chief analyst at Rystad Energy. “The main reasons for the price increase are the data on regional traffic, which indicates that the fall in demand is behind us,” he added.

President Donald Trump weighed in on rising prices, writing “Oil prices are rising well as demand starts up again!” In a tweet Tuesday morning.

Demand for oil fell from a cliff as the coronavirus pandemic spread around the world, forcing billions of people to stay indoors and almost completely stopping air travel. By some estimates, up to a third of global demand was wiped out in April.

But with the gradual reopening of economies – a number of U.S. states, including Florida, entered phase 1 of the reopening plans on Monday, while millions of Italians will return to work this week – investors believe it there will be an increase in demand.

“The reopening of economies has injected some cautious optimism into an oil market that plunged a few weeks ago to its all-time low,” RBC analyst Michael Tran said on Tuesday in a note to clients.

“There are reasons to believe that the worst of the destruction of demand is behind us. Comments from several companies indicated an improvement in US demand in late April, particularly for gasoline, “added Stacey Morris, director of research at Alerian.

The improved demand outlook comes when producers cut back on production, which also supported prices. The historic cut by OPEC and its oil-producing allies, which draws 9.7 million barrels a day offline, took effect on May 1. Norway and Canada have also reduced their production.

Energy Information Administration data in the U.S. has shown that weekly production averaged 12.1 million b / d for the week ending April 24, or about 1 million b / d below. record levels in March. Exxon, Chevron and ConocoPhillips are among the companies that have reduced production in the face of falling prices.

The recent strength of oil, however, barely breaches its historic fall. WTI and Brent are both firmly in a bear market, plunging 68% and 62% respectively from their high levels of 52 weeks. The decline was also rapid – the WTI peak of $ 65.65 over 52 weeks was January 8.

And traders warn that the road to recovery in oil prices will be long and uncertain. Even with reduced operations from global producers, global storage is filling up quickly and some believe that longshoremen could be reached in a matter of weeks.

“The path to recovering demand for oil in the United States and around the world is still pending,” said Morris.

And Nysveen thinks that the “market is still vulnerable”.

“The existing problems have not been solved as if by magic, the storage constraint is still there … We remain very cautious in the short term, but we think that we will see a recovery in prices in the longer term”, he said. -he adds.

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