SINGAPORE: Oil clawed back some losses as signs of a recovery in the Chinese economy bolstered hopes for a rebound in demand though prices are still headed for the worst quarter on record.
While New York futures rose for the first time in four sessions, adding 5.9% on stronger-than-anticipated China manufacturing data, oil is still down 65% since the end of December.
The spreading pandemic has led to lockdowns across the globe, sapping demand for crude and fuels.
China’s oil refiners are also boosting crude processing rates to levels last seen before the outbreak, but the increase may be in vain.
Worldwide demand is plunging, with Goldman Sachs Group Inc predicting consumption will drop by 26 million barrels, or 25%, this week.
The slump in demand has shut refineries from South Africa to Canada, leading to a glut in the market, while Saudi Arabia is directing huge amounts of crude toward Egypt as the producer prepares to flood Europe with its barrels.
The huge oversupply is collapsing the oil market’s structure, and there may be more weakness to come as the world quickly runs out of storage capacity.
“Any little bit of optimism is welcome even if it is little more than a false dawn,” said Stephen Innes, global chief market strategist at AxiCorp Ltd.
“The demand devastation is the most aggravating factor these days, while the supply issues are exacerbating that pressure.”
West Texas Intermediate for May delivery added US$1.19 to US$21.28 a barrel on the New York Mercantile Exchange as of 12.16pm Singapore time.
The contract slumped 6.6% to US$20.09 on Monday, the lowest since February 2002.
Prices are also down 52% this month.
Brent for May settlement rose 38 cents, or 1.7%, to US$23.14 a barrel on London’s ICE Futures Europe exchange after dropping 8.7% Monday to settle at US$22.76.
The contract is down 54% in March and about 65% this quarter.
Futures in the global Brent benchmark are suggesting a historic glut is emerging. The May contract is trading at a discount of more than $14 a barrel to November, a more bearish super-contango than the market saw even in the depths of the 2008-09 global financial crisis.
Crude prices are already far below those of futures benchmarks in the market for physical barrels. Oil from Canada touched a record low of US$3.82, while many other key grades are trading below US$10, with some as low as US$3.
Pioneer Natural Resources Co and Parsley Energy Inc have asked Texas regulators to consider a cut to output and to call an emergency meeting no later than April 13.
Ryan Sitton, one of three commissioners on the Texas Railroad Commission, said on Monday that the regulating body will discuss curbing production at its next meeting.