Oil prices jumped on Friday with West Texas Intermediate crude spiking 88 per cent, closing out May with record monthly gains as worldwide easing of lockdown curbs steadily boosted demand. Hopes of falling inventories subsequent to deeper Opec output cuts also spurred the rally.
WTI crude futures for July delivery settled at $35.49 a barrel, jumping $1.78, or 5.3 per cent on Friday while July Brent crude closed at $35.33 a barrel, gaining four cents. However, the more active August contract ended at $37.84, rising $1.81, or roughly five per cent.
The previous monthly record for WTI crude oil was in September 1990, when the commodity jumped 44.6 per cent, according to oil market analysts. However, the commodity is still down 42 per cent year-to-date, despite the steep jump in May.
"The record one-month price rally of WTI comes a month after its price turned negative for the first time ever, as investors were unnerved by a surge in supply and a drop in demand for oil amid the pandemic. Now, investors seem to be betting that demand for oil will bounce back as the economy begins to show initial signs of a recovery," oil market analysts said.
Ehsan Khoman, director, head of Mena Research and Strategy at MUFG, said the sharp oil market rebalancing continues to garner momentum, fundamentally driven by demand improvements through the re-opening of economies across the world.
"However, the markets pulse in the near-term would seem more balanced, between hopes associated with ongoing easing of lockdown measures on the one hand, and simmering US-China animosities and a de-synchronised recovery among developed and emerging markets on the other hand."
Khoman said the further reopening of economies across the world in the weeks ahead, alongside higher decline rates, lost shut-in capacity and a materially higher cost of capital for oil markets, will set the stage for a global oil market in deficit by mid-June, ultimately leading to higher oil prices.
"We continue to see firm upside risks to our second quarter of 2020 Brent ($32 per barrel) and WTI ($28 per barrel) forecasts," he said.
US President Donald Trump said his administration will begin to eliminate special treatment for Hong Kong in response to China plans to impose new security legislation in the territory, but he did not say the first phase of the Washington-Beijing trade deal was in jeopardy. That put oil investors, worried that a breakdown in trade relations would further hurt oil consumption, at ease, said analysts.
"There was a lot of nervousness, but it looks like the worst case scenario doesn't appear to be emerging," said John Kilduff, a partner at Again Capital Management in New York.
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