Some relief for oil storage terminals... Demand has seen some partial gains, in the US and China, and if that sustains, will gradually lower storage levels worldwide. Image Credit: Bloomberg

New York: Oil advanced for a second day on signs fuel consumption is starting to recover in the world’s biggest economies, while global production cuts also begin to offset the demand destruction caused by the coronavirus.

Futures in New York rose around 8 per cent to above $16 a barrel. They surged by more than a fifth of their value on Wednesday as US Energy Information Administration data showed a surprise drop in American gasoline stockpiles and a jump in demand. In China, traffic is returning to the streets, supporting a boost in fuel consumption and refinery processing rates.

On the supply side, US output will fall by 2 million barrels a day in May compared with March and the price of crude has likely bottomed out, according to the head of trading house Mercuria Energy Group Ltd. Russia also flagged that its production would fall by around a fifth.

Much of it still remains

Despite the indications of a tentative rebound in demand, there’s still a massive global glut of oil that will need to be cleared before there can be any meaningful recovery in prices. A fleet of supertankers carrying 43 million barrels of Saudi Arabian crude is bearing down on the US, which will add to the over-supply in the world’s largest economy.

“Oil appears to have caught some tailwinds” with the EIA data less bearish than expected and gasoline demand recovering, said Vandana Hari, the founder of Vanda Insights in Singapore. “But it’s too early to call an inflection point.”

WTI for June delivery rose 7.5 per cent to $16.19 a barrel on the New York Mercantile Exchange as of 9:24am in Singapore after jumping 22 per cent on Wednesday. The discount for June futures relative to July was around $4 after blowing out to almost $8 Tuesday as major index funds ditched the front-month contract.

Brent added 3.9 per cent to $23.42 a barrel on the ICE Futures Europe exchange after climbing 10 per cent in the previous session.

Sticking to promises

Russian Energy Minister Alexander Novak told the Interfax news agency that the nation’s oil companies will cut production by about 19 per cent from February levels. Nigeria, which has been struggling to sell its oil even at $10 a barrel, will ship the smallest volume of its key Qua Iboe crude grade since 2016 in May and June.

The EIA reported a smaller-than-expected 8.99 million barrel increase in US crude stockpiles and a 3.64 million barrel build at Cushing, Oklahoma, the delivery point for futures. US gasoline inventories fell by 3.67 million barrels, compared with expectations for a build of 2.49 million.

Weekly gasoline supplied, an indicator of demand, rose by 549,000 barrels a day.