New York — Oil prices jumped on Monday, with both U.S. and Brent benchmarks on track for their highest settles in two months, supported by optimism about resumption in economic activity and steady output cuts from major producers.
Brent futures LCOc1 for July delivery rose $2.96, or 9.1%, to $35.46 a barrel by 11:16 a.m. EDT (1516 GMT), while U.S. West Texas Intermediate crude (WTI) CLc1 for June traded $3.61, or 12.3%, higher at $33.04.
That puts both Brent and WTI on track for their highest settles since March 11.
Summer weather is enticing much of the world to emerge from coronavirus lockdowns. Shops and restaurants were reopening in Italy on Monday, while other centers of the outbreak such as New York and Spain will gradually lift restrictions.
“Optimism on the demand side of the oil equation has helped prices climb further, with gasoline demand coming back as governments ease confinement measures,” said Rystad Energy’s senior oil markets analyst Paola Rodriguez Masiu.
However, analysts cautioned that demand was not expected to recover to pre-coronavirus levels any time soon.
“Clearly the fundamentals in the market are improving, but we continue to believe that the market is rallying too much too soon, with the risk that further strength will only prolong the supply and demand imbalance,” ING analyst Warren Patterson said.
The head of the International Monetary Fund warned the global economy will take much longer to recover fully from the shock caused by the coronavirus than initially expected.
The rally in the June WTI CLM0 contract, which will expire on Tuesday, suggested last month’s historic plunge to negative-$40 a barrel would not be repeated.
July WTI NGN20 was the more actively traded futures contract with volumes in the second-month contract outpacing the front-month for several days now. The July contract was up about 11% to $32.80.
Despite bleak economic forecasts, oil prices were supported by production cuts by the Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC+.
The world’s top exporter Saudi Arabia announced last week it would cut an additional 1 million barrels per day in June, while OPEC+ wants to maintain existing oil cuts beyond June when the group meets next.
“Thanks to the additional production cuts by Saudi Arabia, the United Arab Emirates and Kuwait and the more rapid decline in oil production in North America, the oil market could reach equilibrium as early as June,” said Commerzbank analyst Carsten Fritsch.
Kuwait and Saudi Arabia have agreed to halt oil production from the joint Al-Khafji field for one month, starting from June 1, Kuwait’s Al Rai newspaper reported on Saturday.
Production is also falling in North America as U.S. and Canadian energy firms slash investment in new oil and natural gas drilling and cut their overall rig counts to record lows.
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