(Bloomberg) -- Oil continued its comeback, buoyed by signs of increasing demand as cities emerge from lockdown. But fears of a second wave of the virus, combined with record-high stockpiles in the U.S., are limiting the rally.
Top trading houses Vitol SA and Trafigura Group said global oil demand is recovering rapidly from its historic nadir. They cautioned, however, that a renewed outbreak of the coronavirus is clouding the long-term outlook. In the U.S., consumption is improving, but rising cases of Covid-19 in Texas and elsewhere has raised the possibility of lockdowns resuming. And a stubborn supply glut has further capped gains, with higher prices prompting some shale producers to restart wells just weeks after shutting them.
To sustain the rebound, shale companies should avoid investing in new drilling, said Stewart Glickman, an energy analyst at CFRA Research. “That will help on the supply side from the U.S.,” he said. “The best way to get out of this is to be more disciplined and wait for prices to go back above $50 and stay higher.”
West Texas Intermediate crude has failed to close above $40 since early March. Despite staging a remarkable recovery from its crash into negative territory, the U.S. benchmark is still down 36% this year.
Meanwhile, American crude inventories rose last week to another record high. Oklahoma City-based Continental Resources Inc., chaired by billionaire Harold Hamm, said Thursday it will start bringing back some of its shut-in oil production in July but will keep about 50% of output curtailed.
While physical markets in Europe are strengthening -- with Brent futures for August settling above the September contract for the first time since March, a sign of tightening supplies -- the U.S. benchmark’s structure hasn’t turned as bullish.
A slow resumption of flights will constrain jet-fuel consumption, and high unemployment will restrict gasoline use, the Organization of Petroleum Exporting Countries said Wednesday in its monthly report.
OPEC+ held an online meeting on Thursday finalizing an accord reached in principle earlier this month. Habitual quota cheat, Iraq, said it will implement its oil-production cuts in full this month and agreed on the details of how to compensate for falling short of its target in May.
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