(Bloomberg) -- Oil’s recovery rally extended into a sixth day on optimism that production cuts and improving demand are beginning to chip away at the supply glut caused by coronavirus lockdowns and the price war.
Futures in New York swung around $25 a barrel in Asian trading after surging 20% on Tuesday to close at the highest level in almost a month. Diamondback (NASDAQ:FANG) Energy Inc. and Parsley Energy (NYSE:PE) Inc. became the latest U.S. drillers to cut production in the country’s biggest shale fields. That came after OPEC+ began implementing 9.7 million barrels per day of output curbs on May 1.
The cutbacks are easing fears that the world will run out of storage space for crude and fuels, reducing the chances of a repeat of last month’s plunge below zero as the front-month contract nears expiry. The supply glut has probably hit its apex, according to Morgan Stanley (NYSE:MS), though the market will likely remain oversupplied for several weeks.
While it’s possible the worst is over for oil markets, a long and uncertain recovery lies ahead. U.S. production could start coming back if the rally continues, with Diamondback and Parsley saying all they need is prices above $30 a barrel to consider restoring curtailed output. The risk of a second virus wave in the U.S. as states reopen can’t be discounted, while deteriorating relations between Washington and Beijing will also hamper the global recovery.
West Texas Intermediate for June delivery rose 1% to $24.81 a barrel on the New York Mercantile Exchange as of 8:25 a.m. in Singapore. The contract has more than doubled in price in a six-day rally that’s the longest since February 2019. WTI for June is now less than $2 cheaper than for July, suggesting concerns about over-supply have eased.
Brent for July settlement advanced 0.7% to $31.18 a barrel on the ICE (NYSE:ICE) Futures Europe exchange. It jumped 14% on Tuesday to close above $30 a barrel for the first time in three weeks and has surged 56% since the close on April 27.
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.
U.S. 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.
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