Oil Prices Close Mixed on Fresh Worries

By Adedapo Adesanya

Oil prices ended the Tuesday session with a mixed outcome even as producers are cutting output and also the increase in demand as more countries ease curbs imposed to counter the coronavirus pandemic.

Brent crude, which rose to $35 for the first time in two months, shed 16 cents or 0.46 percent to trade at $34.65 per barrel.

On the other hand, the US West Texas Intermediate (WTI) crude gained 68 cents or 2.14 percent to trade at $15.39 per barrel yesterday.

Even with the positive news surrounding the market, there continued to be worries as global demand recovery is expected to be slow as some restrictions remain.

Also, there is a significant risk of repeat outbreaks and lockdowns due to the decisions to reopen economies in major cities.

While the size of a production deal cap signed by the Organisation of the Petroleum Exporting Countries (OPEC) has reduced daily global supply by about 10 percent and its effect is being felt, demand has fallen even more and many are still cautious to be on the road again anytime soon.

However, for previous worries like oversupply, production in the largest producing country, the United States, is also falling, with crude output from seven major shale formations expected to fall to 7.8 million barrels per day in June, the lowest since August 2018, according to the Energy Information Administration (EIA).

Meanwhile, late on Tuesday, the American Petroleum Institute (API) estimated a large crude oil inventory draw, of 4.8 million barrels for the week ending May 15. Analysts had predicted an inventory build of 1.2 million barrels.

In the previous week, the API estimated a large build in crude oil inventories of 7.6 million barrels.

Traders will, however, be happy now that demand in China has almost returned to its level before the coronavirus pandemic led the government to impose lockdowns and shut down industries.

Chinese refiners are seeing profits from turning crude into fuels but buyers may have to scramble for cargoes after Saudi Arabia, Kuwait and the U.A.E. said they would reduce supplies from June as they press ahead with planned curbs to support a market rebalancing.

On the other hand, demand for jet fuel remains weak as travel restrictions and transmission fears continue to weigh on the airline industry.