Oil on Friday headed for its first back-to-back weekly gain since February as output cuts from the biggest producers and a nascent recovery in demand began to rebalance a market awash with crude.
Futures in New York rose toward US$25 per barrel and were up about 21 percent this week.
Saudi Arabia, the world’s largest oil exporter, raised the cost of almost all grades for next month, suggesting that it is more interested in supporting a recovery in prices than competing for market share.
There was also more evidence that demand is starting to return in the US.
Gasoline supplied, an indicator of consumption, last week rose by the most in almost two years, while Genscape Inc reported that stockpiles at a storage hub in Cushing, Oklahoma, have fallen since May 1, which would be the first contraction since late February if confirmed by government data.
While there is still a substantial glut to clear, the numbers are prompting optimistic assessments from some influential energy analysts.
Global oil demand is on an “improving trajectory” and might exceed supply by the start of next month, Goldman Sachs Group Inc head of commodities research Jeffrey Currie said.
The market would return to balance in July before moving into excess consumption for the rest of the year, Standard Chartered PLC said.
The “massive” price hikes by Saudi Arabia “show the willingness to bury the hatchet with Russia in the price war,” Commerzbank AG head of commodity research Eugen Weinberg said.
Recent gains in the market are largely due to a combination of higher risk appetite and expectations for stronger demand, he said.
“We consider the price increase overdone, however,” he added.
US benchmark crude needs to be capped at about US$25 per barrel to force producers to curtail output, BNP Paribas SA head of commodity markets strategy Harry Tchilinguirian said.
That price level keeps supply from overwhelming capacity at Cushing.
“You need to make sure that production declines to avert the containment issue at the storage hub,” Tchilinguirian said.
West Texas Intermediate for delivery next month rose 1.4 percent to US$23.87 per barrel on the New York Mercantile Exchange as of 12:47pm in London after closing down 1.8 percent on Thursday.
Brent for July settlement added 1.2 percent to US$29.82, increasing its advance over the past week to about 13 percent.
While the Saudi Arabian pricing announcement brought relief to the market, a robust increase in demand would be needed to sustain higher prices. The kingdom late last month began curbing production as part of an OPEC+ deal, but still exported record amounts of crude last month.
The level of excess global supply last month averaged 21.3 million barrels per day, Standard Chartered said.
US weekly gasoline last week supplied rose by 804,000 barrels per day, the biggest jump since June 2018, US Energy Information Administration data showed.
The fuel’s premium to diesel climbed to the highest since 2017.
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