By Barani Krishnan
Investing.com - Oil prices returned to positive territory on Thursday as encouraging words from the Paris-based International Energy Agency about green shoots in demand helped overcome an otherwise somber sentiment forced by continued U.S. job losses from Covid-19.
The IEA boosted its 2020 global demand forecast for oil by 700,000 barrels per day, noting that uptake for crude has “improved somewhat”, with demand a little stronger than expected and supply curtailment continuing from the more-than-50% price drop since the start of the year.
“It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” said the Paris-based agency. “We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected.”
June WTI, the benchmark for U.S. crude, was up $1.59, or 6.3%, to $26.88 per barrel by 12:45 PM ET (16:45 GMT).
London-traded Brent for July delivery, the global benchmark for oil, rose $1.60, or 5.5%, to $30.79.
It has been a volatile couple of weeks for oil prices, but that hasn’t stopped WTI from doubling in value since April 28 lows of slightly above $12 a barrel.
The IEA’s assessment on demand comes on the heels of the weekly report from its U.S. peer — the Energy Information Administration — which announced on Wednesday a smaller-than-expected build in crude stockpiles and bigger-than-forecast draw in gasoline inventories that also alludes to improved fundamentals.
Demand aside, the Paris-based agency projected that U.S. production could be down as much 2.8 million barrels per day, higher than the notional 2 million barrels offered by the Trump administration under the GLOPEC output cuts deal among OPEC, Russia, the U.S. and other world oil producers.
Even so, Goldman Sachs (NYSE:GS), one of Wall Street’s most influential voices in oil trading, saw little upside for both WTI and Brent over the summer.
“We therefore maintain our summer price forecasts of $30/bbl Brent and $28/bbl for WTI, especially given the still high demand uncertainty in coming months,” analysts at Goldman said in a research note.
Some analysts concurred with Goldman’s thinking.
“I have heard a lot of talk from U.S. traders that June crude production is going to go back up in the U.S. with stronger prices and differentials,” Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C., said in an e-mail to clients that was shared with Investing.com.
“I think this market is running out of reasons to go up. I think that there is massive availability of crude on the water via floating storage that is just itching for the economics to come on shore.”
Shelton said next week might be a good test case for crude prices with the forward curve flattening between front-month June WTI and the upcoming spot contract, July.
“There is zero incentive for a producer to hold back oil.”