Crude Oil Rally Rages on as Demand Woes Ease
Crude oil markets stormed ahead for a second day on Tuesday, as the demand woes that contributed to WTI’s fall into negative territory last month ease.
June WTI futures shot to above the $24 handle from overnight levels of below $21, while July Brent futures rose to above $30 per barrel for the first time since April 15th. Gains were not just in the front end of the crude futures curve; WTI contracts as far out as the February 2022 future gained over $1 today.
Over the past week, WTI crude has gained some 80%!
Why are crude markets gaining so much ground then?
Crude markets are especially sensitive to the easing of lockdowns, as transportation will be one of the first things to pick up once lockdowns are eased. As cities in China have shown us, traffic can quickly pick up to pre-Covid-19 levels, even if economic activity does not. Traffic data all across Europe and the US already shows increased levels of travel activity - many analysts think that the worst of the slump in demand for fuel is now behind us.
Spain, Italy, India and some US states (to be joined by the most populous state, California, on Friday) have tentatively begun a process of easing lockdown restrictions this week.
The reopening of economies has injected a degree of cautious optimism back into an oil market that plunged to historic lows only weeks ago,” said Michael Tran, a commodity strategist at RBC Capital Markets.
Even US President Trump was out today hailing the rise in oil prices and saying that demand is coming back.
But other analysts are more cautious about the longevity of this most recent rally; Giovanni Staunovo, analysts at UBS, said “many market participants believe there is light at the end of the tunnel… (but) with oil inventories still increasing, crude oil prices remain vulnerable to renewed setbacks”.
In other words, the storage issue is yet to be fixed. Could we be in for a repeat of last month’s chaos?
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