TOPLINE: After months of sagging demand and wild swings in prices that at one point fell below zero, oil has now seen five straight days of gains as economies slowly reopen and traders bet on a comeback.
U.S. oil prices jumped nearly 20% on Tuesday, with the June futures contract for West Texas Intermediate crude reaching $24.56 on its fifth straight day of gains.
Last month, futures prices for the May WTI contract plunged into the negative for the first time in history as demand cratered and storage space filled up.
Brent crude, the international benchmark, saw a bump of almost 14% on Tuesday and settled at $30.97 per barrel.
Prices are responding to a slow uptick in demand: As some states and cities take cautious steps towards reopening, and as Europe and China return to work, investors are optimistic that restrictions on travel and movement will continue to ease.
At the same time, global oil production is dropping thanks to a deal between OPEC and its allies last month to reduce collective output by some 10 million barrels per day.
Some American producers have also taken steps to slow down production; last month, ConocoPhillips said it would cut 225,000 barrels per day.
“The reopening of economies has injected a degree of cautious optimism back into an oil market that plunged to historic lows only weeks ago,” RBC analyst Michael Tran said in a client note.
Last week, ExxonMobil XOM reported its first quarterly earnings loss since 1988 and cut its spending by $10 billion. Two weeks ago, BP saw its quarterly profit fall 67% compared to the same period last year.
International oil hasn’t been hit nearly as hard as its American counterpart by the coronavirus crisis. The reason for the difference boils down to storage: Brent crude is priced in the middle of the North Sea, where tanker storage is ample and accessible, while WTI oil storage in the U.S. is limited and hard to reach. As a result, Brent is more removed from the coronavirus demand shock while WTI prices are much more sensitive to it.
WHAT TO WATCH FOR
Despite the major production cuts, the oil market is still under pressure and the next few weeks are likely to reveal more weakness. “The existing problems did not magically get resolved, the storage constraint is still there, but a couple of weeks away, so we will see its effect on prices soon, as the market will get tight,” writes Per Magnus Nysveen, head of analysis at Rystad Energy.