Oil futures climbed by more than 6% on Tuesday, with U.S. and global benchmark prices posting their highest finish in a week, as China somewhat eased its COVID-19 lockdown of Shanghai.
West Texas Intermediate crude for May delivery
rose $6.31, or 6.7%, to settle at $100.60 a barrel on the New York Mercantile Exchange, following a decline of 4% on Monday. Front-month prices haven’t settled above $100 since April 5, FactSet data show.
June Brent crude
the global benchmark, added $6.16, or 6.3%, to $104.64 a barrel on ICE Futures Europe, the highest finish in a week. Brent on Monday closed below $100 for the first time since March 16.
The recent pullback in crude prices, which on Friday saw a second consecutive weekly fall, has been blamed in part on a China’s lockdown of Shanghai, with a population of more than 25 million due to a COVID outbreak. Reports of shortages of food and other necessities have been rising as the strict lockdown continued.
However, Shanghai on Tuesday said it would lift some restrictions on neighborhoods where no new infections had been reported over the past two weeks.
The news helped ease concerns around Chinese oil demand, offering a sort of “light at the end of the tunnel trade,” said Stephen Innes, managing partner at SPI Asset Management, in a daily note.
“The easing of some lockdown restrictions in Shanghai offers a “light at the end of tunnel trade,” but oil bulls “have fingers crossed that light isn’t a Chinese COVID freight train at the other end of the tunnel.””
— Stephen Innes, SPI Asset Management
However, “oil bulls have fingers crossed that light isn’t a Chinese COVID freight train at the other end of the tunnel,” he said.
On Tuesday, the Organization of the Petroleum Exporting Countries, or OPEC, lowered its forecast for 2022 growth in oil demand to 3.7 million barrels a day, down 500,000 barrels a day from its previous forecast. The cut was “mostly reflecting” the organization’s lowered 2022 economic outlook, OPEC said in its monthly report.
Separately, the Energy Information Administration cut its forecast for global consumption of petroleum and liquid fuels on Tuesday. It expects consumption to average 99.8 million barrels a day for 2022, down 800,000 barrels from the March forecast.
The government agency also reduced its 2022 price forecasts for WTI and Brent, bur raised its 2023 price forecasts for both grades.
Meanwhile, a coordinated release of crude oil by the U.S. and other countries from strategic reserves, announced last week, was also cited as a factor in the recent pullback for crude prices.
The Biden administration plans to allow high-ethanol content gasoline to be sold during the summer in an effort to help tamp down high fuel prices, according to senior administration officials. The decision would allow gasoline with 15% ethanol to be sold between June 1 and Sept. 15. Normally only 10% ethanol blend is allowed to be sold during that period to reduce smog.
Natural-gas futures extended their gain to more than a 13-year high, “as large swaths of the northern U.S. and Southern Canada experience a prolonged winter,” said Vinicius Romano, senior analyst at Rystad Energy, in a note. “The elevated domestic and export demand from Europe has brought U.S. storages to a lower-than-average level at this time of the year sustaining such prices.”
The monthly EIA report Tuesday forecasts an average 2022 U.S. natural-gas price of $5.23 this year, up 32% from the March forecast, with U.S. liquefied natural gas exports likely averaging 12.2 billion cubic feet a day for the year, up 25% from 2021.
The EIA’s weekly petroleum supply report is due Wednesday. On average, analysts forecast a climb of 300,000 barrels in crude stocks for the week ended April 8, but also see supply declines of 800,000 barrels for gasoline and 1.5 million barrels for distillates, according to a survey by S&P Global Commodity Insights.