Oil advances with demand rebounding, supply cuts taking hold

Oil is set for its third weekly gain as major producers slash supply and signs continue to emerge that demand is recovering.

Futures in New York rose as much 5.8% Friday. OPEC is optimistic that the worst of the oil crisis is over and sees signs that the global economy is starting to recover. China’s industrial output increased in April for the first time since the coronavirus outbreak, signaling economic recovery aided by government stimulus efforts. Meanwhile states in the U.S. are beginning to ease lockdown measures.

“There are expectations around the reopening of economies," Will Rhind, chief executive officer at GraniteShares, said. There is “optimism that there will be a pickup in demand which will ease pressure on supplies or storage."

The price for the WTI June contract briefly rose above that of the July’s for the first time since mid-march, indicating that concerns around storage capacity are easing. Stockpiles at the key U.S storage hub in Cushing, Oklahoma fell last week for the first time since late February.

Oil prices are still down more than 50% this year. Demand is far below pre-virus levels, but BP Plc sees evidence of consumption rising and the International Energy Agency said the market’s outlook has improved. Additionally, Saudi Arabia will slash supply to its customers around the world in June as part of OPEC and its allies’ record production cuts.

However, the oil market’s recovery remains fragile. More than 30 tankers laden with the kingdom’s crude are set to reach the U.S. this month and the next, according to ship-tracking data compiled by Bloomberg. That could put fresh pressure on storage just as the glut shows signs of easing.