Oil Market Wraps Up Incredible Quarter

(Bloomberg) -- Oil posted its best quarter in nearly 30 years, bouncing back from this year’s historic price crash.

The market’s climb from negative territory in April has been swift but bumpy, with the U.S. benchmark struggling to hold above $40 a barrel amid a stubborn supply glut and a resurgence of Covid-19 cases that’s darkened the demand outlook.

But futures in New York surged 92% in the three months through June 30th following crude’s worst quarter on record, buoyed by OPEC+ production cuts and rebounding oil consumption in post-lockdown China.

“It’s not going to jump back up to $60 overnight, but to get to where we are now from where we were at is an incredible story,” said Phil Flynn, an analyst at Price Futures Group Inc. How quickly the market can complete its recovery is an open question. “Coming out of the rut will have to happen one day at a time,” he said.

While demand is gradually improving, it’s still a long way off pre-crisis levels. In the U.S., a spike in virus cases is prompting many states to pause or reverse re-openings, which could curb summer travel just as fuel consumption was beginning to ramp up. Across the Atlantic, European Union governments extended a travel ban for U.S. residents.

Rising American inventories are also weighing on prices, which are still down more than 30% so far this year. Crude stockpiles have expanded for the last three weeks to the highest level on record while diesel supplies have swelled for 11 of the last 12 weeks. Government data released on Wednesday will reveal whether inventories are continuing to pile up.

“It could be a slaughter,” said Robert Yawger, director of the futures division at Mizuho Securities USA. “We could have three records tomorrow in gasoline, distillate and crude oil at all-time record storage levels.”

In yet another threat to the market recovery, rising prices have prompted some U.S. producers to restart wells they shuttered after the crash. ConocoPhillips said Tuesday it will restore some curtailed production next month.

Prices:

West Texas Intermediate crude for August settlement fell 43 cents to settle at $39.27 a barrel in New York. Brent for August delivery, which expired Tuesday, dropped 56 cents to end the session at $41.15 a barrel. The more active September contract declined 58 cents to settle at $41.27 a barrel. While increasing U.S. output complicates OPEC+’s goal of balancing the market, the producer alliance has made good on its historic pledge to cut production but almost 10 million barrels a day. Saudi Arabia and Russia have both slashed exports to multi-year lows, supporting physical prices in some parts of the world.

In another bright spot for the oil market, China’s recovery is continuing with manufacturing data for June beating estimates, pointing to stronger demand from the world’s largest consumer.

“The worst is behind us,” Amin Nasser, chief executive officer of Saudi Aramco, said in an interview with consultant IHS Markit. “I’m very optimistic about the second half of this year. We see it in China today, it’s almost at 90%.”

Other oil-market news

Russia, often a laggard in previous OPEC+ agreements, came close to its output target this month as the alliance demanded every member’s full compliance with the historic deal. Shell will write down between $15 billion and $22 billion in the second quarter, as the company gave investors a wider glimpse of just how severely the coronavirus crisis has hit Big Oil. Saudi Arabia, de facto leader of the OPEC cartel, held a call with fellow member Nigeria as the organization strives to deliver production cuts aimed at bolstering global crude markets. --With assistance from Alex Longley and Elizabeth Low.

To contact the reporters on this story: Hailey Waller in New York at hwaller@bloomberg.net; Andrew Marquardt in Chicago at amarquardt6@bloomberg.net

To contact the editors responsible for this story: Jasmina Kelemen at jkelemen2@bloomberg.net Jessica Summers, Joe Richter

Oil Market Wraps Up Incredible Quarter

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