Oil Price Fundamental Daily Forecast – Gains Extended Amid Signs of China Demand Pickup

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Friday, while breaking out of a seven-day trading range.

The catalyst behind today’s strength is a report that showed China’s daily crude oil throughput rebounded in April from a 15-month low in March as refiners cranked up operations to meet renewed fuel demand after lock downs imposed to prevent the spread of the coronavirus outbreak were eased.

At 08:40 GMT, July WTI crude oil is trading $28.57, up $0.69 or +2.47% and July Brent crude oil is at $32.08, up $0.95 or +3.05%.

China’s Daily Crude Oil Throughput Rebounds

China processed a total of 53.85 million tonnes of crude oil last month, data from the National Bureau of Statistics (NBS) showed on Friday, equivalent to about 13.1 million barrels per day (bpd). That was some 11% higher than 11.78 million bpd in March.

The agency said on Friday it had adjusted the database of industrial enterprises it uses to help compile a range of production numbers. On that basis, Friday April’s crude oil throughput was 0.8% above the year-ago level, it said; a Reuters calculation using NBS data from last year put the rise at 3.4%.

The statistics bureau also reported that China’s oil output in April rose to 15.87 million tonnes, up 0.9% from the same month a year earlier. Over the January-April period, China pumped out 64.44 million tonnes of crude oil, up 2% on the year.

Additionally, state-backed refiners have pushed up crude oil processing rates to around 79% in May, according to estimates from consultancy Longzhong Information Group, close to January’s 82% level before extensive movement restrictions were imposed to prevent the coronavirus spreading.

US to Buy Up to 1 Million Bbls of Oil for Emergency Reserve

The U.S. Energy Department said on Wednesday it will buy up to 1 million barrels of sweet crude for the government’s emergency petroleum reserve as part an effort to help producers struggling as the coronavirus strangles oil demand, as reported by Reuters.

The purchase of up to 1 million barrels “will serve as a test of the current conditions of physical crude oil available to the SPR as opposed to the financial market trading WTI NYMEX futures contracts,” the department said in a release. The department will purchase the oil from small to midsize domestic producers, it said.

Oil Prices Supported by Upbeat US Crude Stockpile Estimate

Oil prices are also being underpinned after a drop in U.S. crude stocks and an IEA forecast for lower global stockpiles in the second half. On Wednesday, the U.S. government reported that crude inventories fell for the first time in 15 weeks. Meanwhile, the International Energy Agency (IEA) on Thursday again forecast a record drop in demand in 2020 though it trimmed its estimate of the fall citing easing lockdown measures.

Daily Forecast

Prices have ticked up in the past two weeks as some countries relaxed coronavirus restrictions and lockdowns to allow factories and shops to reopen. However, the emergence of new cases in South Korea and China raised concerns over a possible second wave of infections which would weigh on economic recovery and fuel demand.

U.S. Federal Reserve Chairman Jerome Powell warned on Wednesday of an “extended period” of weak economic growth.

Recovering demand and lower output are helping to underpin prices but a second wave of coronavirus cases would push prices back down. This is why we expect the buying to be a little tentative despite signs of better demand from China. Traders need to see the easing of restrictions is working and that the number of coronavirus cases have leveled off.