Oil in first weekly gain in a month with output cuts starting
Oil headed for its first weekly gain in a month as global production cuts start to lift physical markets and demand shows tentative signs of recovery.
Futures in New York traded above $18 a barrel and are up 9% this week. OPEC+ is officially starting its unprecedented 9.7 million barrels a day of output reductions from Friday. The price of real crude is reacting to the curbs, with key grades from the Caspian to the North Sea trending higher in recent days.
There are also signals that the peak of the demand destruction may have passed. U.S. government data showed gasoline consumption rose by the most in almost a year last week, while rush-hour traffic in some of the biggest cities in China has recovered to pre-virus levels.
"We started last month with a focus on demand destruction and now we're starting this month with a focus on the supply reduction," said Olivier Jakob, managing director of consultant Petromatrix.
Still, the industry is nowhere close to being out of the woods as a massive glut persists. Royal Dutch Shell on Thursday forecast that its refineries won't run at more than 70% of their capacity in the current quarter. Turkey will halt a 238,000 barrels a day plant as a result of a slowdown in demand. Global storage is also close to filling up and Citigroup warned the worst is likely yet to come for the oil market.
Since crude plunged into negative territory last week, investments have been fleeing the nearest futures contracts, increasing volatility. The United States Oil Fund LP, which came under pressure from regulators last month due to the size of its WTI position, said on Friday that it will halve its holdings in the July contract. It earlier said it may expand investments to include products beyond the benchmark New York crude grade.
There will be some respite from the big oversupply starting Friday as OPEC+ begins its cuts and producers from outside the group join them. Norway will curb output for the first time since 2002, while ConocoPhillips said it will cut more than 400,000 barrels a day in June. Shell said its upstream oil and gas production could fall by as much as a third.
