Futures in New York jumped 1.5% on Wednesday, posting the largest back-to-back daily gains in two weeks. A U.S. government report showed total petroleum stockpiles dropped last week, led by the biggest weekly decrease in distillate inventories since early March. A gauge of demand for overall petroleum products rose to the highest in more than two months. Meanwhile, Goldman Sachs Group Inc. is forecasting an unprecedented jump in global oil demand as vaccination rates rise. “There’s a lot of green shoots in demand,” said Matt Sallee, portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. India’s coronavirus crisis is “clearly a headwind, but looking at what’s going on in the U.S., it’s a completely different story.”
The hefty decline in U.S. distillate supplies comes as robust freight demand drives a trucking boom, providing another sign of the recovery underway in the world’s largest oil-consuming country. At the same time, retail gasoline prices in California rose to $4 a gallon for the first time in a year and a half as restrictions ease in the most-populous U.S. state. Still, a resurgence of the pandemic in countries such as India and Brazil are raising concerns around how long it will take to see a full-fledged demand rebound take hold worldwide. “The market expects a major revitalization for global oil demand from this summer onwards,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “As vaccination campaigns progress and as lockdowns are set to soon be lifted in Europe and other recovering economies, the need for road and jet fuels will increase and the result will be felt.”
PRICES – West Texas Intermediate for June delivery rose 92 cents to settle at $63.86 a barrel, Brent for June settlement gained 85 cents to $67.27 a barrel on the ICE Futures Europe exchange, posting the largest daily gain since April 14 – Both benchmarks were at the highest since March 17
The Energy Information Administration report also showed domestic crude inventories rose by 90,000 barrels last week, smaller than the 4.32 million barrel increase reported by the industry-funded American Petroleum Institute on Tuesday. Gasoline inventories grew for a fourth straight week, the EIA data showed.
The risks to the demand outlook are starting to show up in gauges of market health, however. The structure of the Middle Eastern Bubai benchmark slumped on Wednesday to only a shallow backwardation — an indication that tightness in crude supplies may be easing. Meanwhile, Rystad lowered its oil liquids consumption estimates for India, seeing a 1.4 million barrel-a-day global inventory surplus in May due to the demand loss.
Still, oil is enjoying support from renewed interest in the broader commodities space as the U.S. dollar continues its overall downward trend and as investors look to hedge against inflation. The U.S. Federal Reserve upgraded their view of the economy on Wednesday while leaving key interest rates near zero. The Bloomberg Dollar Spot Index headed for its lowest close since late February, boosting the appeal of commodities priced in the currency.
“Broad-based commodity index ETFs continue to see strong investor demand,” with these flows “more correlated with the reflation trade and less so with any one particular commodity’s fundamentals,” said Ryan Fitzmaurice, commodities strategist at Rabobank. Macro factors should “remain supportive for the foreseeable future and, as such, commodities should continue to outperform other asset classes, attracting even more investor capital to the space.”
