World News
Oil Skyrockets As Demand Concerns Give Sudden Way To Supply Worries
Proving again that sentiment-driven trading produces wild price swings, investors on Tuesday caused oil to skyrocket about 4 percent on signs of higher demand in Europe and China, less than a day after they caused prices to drop based on the perception that demand was in trouble.
As of 1512 GMT, Brent rose $2.37, or 3.9 percent, to $62.60 per barrel, while West Texas Intermediate gained $2.42, or 4.2 percent, to $59.55.
Much of the sudden change in sentiment was based on reports that spending in China increased considerably during the May Day holiday; also, the European Commission proposing more sanctions against Russia stoked geopolitical tensions, as did Israel striking Houthi targets in Yemen.
Additional sanctions on Russian crude may curb global oil supplies and support oil prices.
Another significant motivation for Tuesday's gains was news that Diamondback Energy, the largest independent crude producer in the U.S. Permian Basin, cut its full-year production forecast and stated that it expects domestic crude output to fall in the coming months due to low oil prices.
Diamondback CEO Travis Stice said, "We have a very good view of what the U.S. looks like, and right now that's a business that's slowing dramatically and likely declining in terms of production.
"Every single conversation I've had with ... operators is that this oil price doesn't work."
But confusing the matter on Tuesday was the International Energy Agency, which lowered its crude price estimates for this year and next on the expectation that production growth with overtake demand, leading to global inventory builds.
The EIA said Brent will average $66 per barrel this year compared to its previous estimate of $68 per barrel, and West Texas Intermediate will average $62 per barrel instead of $64; as for 2026, the EIA estimated average spot prices of $59 for Brent and $55 for WTI.
As for the factor that contributed to losses in previous sessions, Oilprice.com noted that while the Organization of the Petroleum Exporting Countries' (OPEC) move to raise quotas by triple than expected caused prices to tumble on Monday, "the fine print matters: chronic overproducers like Iraq and Nigeria are already pumping over quota, so the new targets mostly legalize the status quo.
"Actual production isn't expected to rise much—if at all."