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Oil holds near $60 as uneven recovery holds back further rally
Futures in New York edged higher after rising 0.6% Monday. Pockets of higher fuel consumption are emerging as vaccination rates increase, but the flare-up of cases is leading to renewed lockdowns and restrictions in some countries.
Oil was steady near $60 a barrel in Asian trading as investors assessed an uneven demand outlook amid rising Covid-19 cases in some regions and an impending increase in supply.
Futures in New York edged higher after rising 0.6% Monday. Pockets of higher fuel consumption are emerging as vaccination rates increase, but the flare-up of cases is leading to renewed lockdowns and restrictions in some countries. Adding to the bearish outlook is the prospect for more supply from the US next month, which will coincide with an uptick in output from OPEC+.
Oil remains stuck near $60 a barrel after a rally faltered in mid-March amid concerns over near-term demand following a resurgence of the virus. Despite the recovery wobbles, OPEC+ is betting on higher consumption in the coming months and will soon start adding more crude to the market. The Organization of Petroleum Exporting Countries will provide an update on the outlook for consumption of its crude in a monthly report later Tuesday.
“There are pockets of weakness in the market, which are creating a little bit of concern despite the continued recovery we have seen in major economies like the US,” said Daniel Hynes, a senior commodities strategist at Australia & New Zealand Banking Group Ltd. “Traders are taking a wait and see approach at the moment and that’s why we are seeing prices move sideways.”
Brent’s prompt timespread was 43 cents a barrel in backwardation -- a bullish market structure where near-dated contracts are more expensive than later-dated ones. That compares with 40 cents at the start of April.
Oil production from the Permian Basin, the most prolific US shale patch, is expected to expand to levels not seen since the start of the pandemic next month, according to data from the Energy Information Administration. Output is set to climb to about 4.47 million barrels a day in May.
US crude stockpiles, meanwhile, probably declined further last week. Inventories dropped by 2.4 million barrels last week, according to the median estimate in a Bloomberg survey, which will be the third weekly draw if confirmed by official data on Wednesday.
