Oil prices edged up on Friday, first sustaining gains and then extending earlier gains as crude demand picks up in China.
The easing of curbs to stem the coronavirus disease outbreak in China set hope for an end to global crude supply overhang that has seen oil prices go towards the negative side of $40.
Brent crude was up 63 cents (two per cent) at $31.76 per barrel, after rising nearly seven per cent on Thursday. The global benchmark is heading for a 1.8 per cent gain on the week after rising for the previous two weeks.
West Texas Intermediate was up $1.23 (4.4 per cent) to trade at $28.78 per barrel, having jumped nine per cent in the previous session. WTI is heading for a third weekly increase, up more than 12 per cent.
In the recent supply cuts by the Organisation of the Petroleum Exporting Countries and other major producers, bright spots are also emerging on the demand side. Data released on Friday showed China’s daily crude oil use rebounded in April as refineries ramped up operations.
Still the market mood remains far from euphoric, with COVID-19 far from over and new clusters emerging in some countries where lockdowns have been eased.
“The fundamentals in the market are clearly improving,” ING Research analysts noted. “But we still believe that in the near term, the upside is limited given that we are still in a surplus environment. There is plenty of inventory for the market to digest.”
There is optimism that stockpiles may be on the wane.
The International Energy Agency says it expects crude inventories to fall by about 5.5m barrels per day in the second half of this year.
Meanwhile U.S. crude inventories fell for the first time in 15 weeks, the Energy Information Administration said on Wednesday.
Output cuts will boost the trend towards lower inventories, but U.S. crude is unlikely to see strong gains.
“WTI crude will struggle to break above the $30 level until both the economic outlook improves for the U.S. and some of the downside risks ease,” said senior market analyst at Olsen & Associates, Edward Moya.
On the production side, OPEC and associated producers – collectively known as OPEC+ – had already agreed to cut output by a record of nearly 10mbpd before Saudi Arabia this week extended its planned reductions for June, pledging to lower supply by nearly five mbpd.
Saudi Aramco, the world’s largest oil exporter, reduced the volume of crude it will supply to at least three buyers in Asia by as much as 30 per cent for June, three sources with knowledge of the matter told Reuters on Thursday.
OPEC+ now wants to extend overall production cuts beyond May and June when the group next meets, sources to ld Reuters earlier this week.