Oil prices soared on Tuesday, as some European and Asian countries along with several U.S. states began to ease coronavirus lockdown measures.
The rally extended Brent crude's gains to six straight days, while U.S. benchmark West Texas Intermediate has now rallied for five consecutive sessions. Fuel demand worldwide was down roughly 30% in April, but demand is rising modestly due to efforts to lift travel restrictions.
International benchmark Brent crude rose $3.77, or 13.9%, to settle at $30.97 a barrel. U.S. West Texas Intermediate (WTI) crude futures gained $4.17, or 20.5%, to close at $24.56 a barrel.
Prices extended their gains in after-hours trading despite industry data showing a larger-than-forecast weekly build in U.S. crude inventories, as the report also showed a surprise large fall in gasoline stocks.
U.S. crude inventories rose 8.4 million barrels last week, data from industry group the American Petroleum Institute showed late Tuesday. Analysts forecast a build of 7.8 million barrels ahead of the government's report on Wednesday morning
The API also reported gasoline stocks fell 2.2 million barrels, compared with analysts' expectations in a Reuters poll for a 43,000-barrel increase, signaling that demand was recovering.
Italy, Spain, Nigeria and India, as well as some U.S. states including Ohio, began allowing some people to go back to work and opened up construction sites, parks and libraries. Health experts, however, have warned that such moves could cause coronavirus infections to rise again.
"The market is starting to realize that demand destruction has been terrible, but we're reopening and demand is going to get better," said Phil Flynn, senior analyst at Price Futures Group. "But the production pullback is just beginning."
U.S. President Donald Trump hailed measures by the states to reopen their economies.
Vehicle traffic in most of the United States, including those parts that have yet to lift shelter-in-place orders, has also rebounded, RBC Capital Markets research said in a note.
Swiss bank UBS said the easing of restrictions would help balance out supply and demand, leading to a shortfall in supply by the fourth quarter.
Morgan Stanley said the peak of oversupply in global markets had likely been reached and a storage crunch was abating.
"Inventories have built but not quite as strongly as feared: With social distancing measures ramped up in March ... the observed inventory increases have not been quite as strong as feared," it said in a note.
Saudi Arabia's crude oil exports in May are expected to drop to about 6 million barrels per day (bpd), the lowest in almost a decade, industry sources and analysts say.
The top exporter is cutting production from May under a supply pact with the Organization of the Petroleum Exporting Countries and allies like Russia.
However, Vitol Chief Executive Russell Hardy told Reuters long-term peak demand may be permanently eroded. Global oil demand sank by 26 million to 27 million barrels per day (bpd) in April, and Hardy predicts a year-on-year drop of more than 8 million bpd.
In addition, air traffic is not expected to rebound soon, which will slow the recovery for fuel demand.
U.S. natural gas futures jumped on Tuesday to a 16-week high after a big pipeline shut, on forecasts for cooler weather next week that will boost heating demand, and on slower output as shale drillers hit by collapsing crude prices shut oil wells that also produce a lot of gas.
"This week’s rally continues to be driven by reports of diminished associated gas production (while) near-record cool will support lingering heating demand," said Daniel Myers, market analyst at Gelber & Associates in Houston.
Myers, however, noted coronavirus related "headwinds to other demand sectors still present downside risk that will begin to cap further increases."
Front-month gas futures for June delivery on the New York Mercantile Exchange rose 14.1 cents, or 7.1%, to settle at $2.134 per million British thermal units, their highest close since Jan. 14.
Looking ahead, gas futures for the balance of 2020 and calendar 2021 were trading higher than the front-month contract on expectations demand will jump once governments loosen restrictions.
Canadian energy company Enbridge Inc shut a section of its Texas Eastern pipe in Kentucky following a blast late Monday. That shutdown cut the pipe's gas flows from the Marcellus Shale to the Gulf Coast by over 1 bcfd, according to data from Refinitv.
The U.S. Energy Information Administration (EIA) projected gas production will fall to an annual average of 91.7 billion cubic feet per day (bcfd) in 2020 and 87.5 bcfd in 2021 from a record 92.2 bcfd in 2019 as energy firms cut spending on drilling. Refinitiv said average gas output in the U.S.
Lower 48 states has fallen to 89.6 bcfd so far in May, down from an eight-month low of 92.8 bcfd in April and an all-time monthly high of 95.4 bcfd in November.
The EIA projected coronavirus lockdowns will cut U.S. gas use - not including exports - to an average of 83.8 bcfd in 2020 and 81.2 bcfd in 2021 from a record 85.0 bcfd in 2019.
With cooler weather coming, Refinitiv projected demand in the Lower 48 states, including exports, would rise from an average of 82.5 bcfd this week to 86.8 bcfd next week. That compares with Refinitiv's forecasts on Monday of 84.2 bcfd this week and 88.5 bcfd next week.
Even though the coronavirus pandemic is reducing gas use, EIA still expects U.S. exports to hit record highs in the coming years as more liquefied natural gas (LNG) export plants and pipelines enter service.
Still, the agency has reduced its projections on the pace of that growth due to the pandemic. Refinitiv said U.S. LNG exports have averaged 7.0 bcfd so far in May, down from a four-month low of 8.1 bcfd in April and an all-time high of 8.7 bcfd in February.
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