Oil Prices Get Boost from Rosier Economic Outlook

(Bloomberg) -- Oil rose as a brighter economic growth outlook and calls for a summer travel pickup eased concerns around the impact of a resurgent coronavirus.

Futures in New York closed 1.2% higher on Tuesday after easing off session highs as U.S. equities weakened. Oil prices remained supported by the International Monetary Fund’s stronger global growth forecast of a 6% expansion this year and the U.S. government’s expectation for rising gasoline demand this summer as Americans get back on the road.

“We’ve gotten to a point of somewhat equilibrium,” and the market “is in an in-between spot,” said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis. “To maintain gains, we’re going to have to see the economy pick up and energy demand continue to rise.”

Oil rallied 22% in the first quarter as the rollout of vaccines spurred optimism that demand would rebound, while the Organization of Petroleum Exporting Countries and its allies kept a tight rein on supply. While the consumption recovery in countries like the U.S. is picking up steam, the global rebound remains shaky. In India, state-run refiners are looking to buy less crude from Saudi Arabia as demand in the Asian nation is poised to dip amid a resurgence of Covid-19, and relations between the two countries sour over prices.

“With supply-side support dwindled, marginal price action in oil markets will now shift to demand dynamics, without as much of a safety blanket from the supply side,” TD Securities commodity strategists led by Bart Melek said in a note. “While the demand outlook is expected to improve substantially into the second half of the year, and should keep markets on a tightening path, near term markets are likely to be balanced rather than in hefty deficits as they have been,” weighing on prices.

Meanwhile, investors are also watching whether a nuclear deal with Iran is resurrected. Iran said multiparty talks in Vienna were “constructive,” though the chances of a breakthrough are seen by analysts as slim. Diplomats will meet again in Vienna on Friday to continue negotiations, lead Iranian negotiator Abbas Araghchi said.

Prices

• West Texas Intermediate crude for May delivery gained 68 cents to settle at $59.33 a barrel
• Brent for June settlement rose 59 cents to end the session at $62.74 a barrel

The oil market’s bullish backwardation structure has flattened in recent weeks, with the closely-watched spread between the nearest December contracts down by over $2 a barrel from its March peak. The decline suggests weakening expectations for the health of the market, though the spread recovered somewhat on Tuesday.

In the U.S., gasoline demand is expected to clock in at about 13% higher this summer compared to last, although not yet back at 2019 levels, according to the Energy Information Administration. In a separate report, the agency also lowered its forecast for U.S. crude production to an average of 11.9 million barrels a day next year.

U.S. crude stockpiles are expected to have fallen last week, according to a Bloomberg survey. The industry-funded American Petroleum Institute will report inventory data later Tuesday ahead of the EIA’s weekly storage figures on Wednesday.

Related news

• Traffic through Egypt’s Suez Canal was briefly halted on Tuesday, just two weeks after a giant container ship ran aground and blocked the waterway that’s vital for global trade.
• Occidental Petroleum Corp. split with some of its larger rivals in rejecting a U.S. carbon tax, preferring the existing system of tax credits designed to encourage oil companies to store carbon dioxide and reduce emissions.

© 2021 Bloomberg L.P.