Updated: Jun 16, 2020
Oil rose as Saudi Aramco slashed its sales to key buyers and the IEA said that the market is showing signs of improving.
Futures in New York added as much as 4.4%. Saudi Aramco cut sales to the U.S. and Europe by about half and reduced supplies to at least 12 customers in Asia for June as OPEC and its allies curb daily output by almost 10 million barrels. The International Energy Agency said the outlook for global oil markets has improved as demand firms.
In a sign that output cuts are starting to take hold, key gauges of market strength are rallying. The price difference between Brent’s two nearest contracts have reached their narrowest in almost two months, signalling the oversupply is reducing. Dated Brent, which prices more than two-thirds of the world’s oil, was assessed by S&P Global Platts at $28 a barrel on Wednesday, up almost $10 from a month ago.
Oil has swung between gains and losses this week as the market grapples with a nascent recovery in demand and concerns a resurgence of coronavirus cases could derail an economic rebound. While the IEA joined Saudi Arabia and Russia in seeing signs of consumption improving, the market is still having to recover from an unprecedented rout that has seen about a billion barrels worth of storage build up.
“We are seeing a gradual recovery in demand and supply cuts finally hitting the market,” said Warren Patterson, head of commodities strategy at ING Bank NV in Singapore. “The market has moved considerably higher since late April, and I think that strength is just not sustainable in the near term.”
Aramco will decrease shipments to some buyers in the U.S. and Europe by as much as 70%, according to a person familiar with the situation. Eight of the 12 Asian refiners that had their term supplies cut said the reductions were substantial, with curtailments of 20-30% or more.
OPEC on Wednesday also presented a bleak assessment of global oil markets for the second quarter, even as pockets of demand emerge in China and India, and Goldman Sachs Group Inc. sees rising gasoline consumption.
“After ‘Black April’, the heaviest demand destruction may be behind us, but huge uncertainties remain,” IEA Executive Director Fatih Birol tweeted. “We see early signs markets have begun the rebalancing process.”