Oil Achieves More Gains As Traders Inspired By Economic Recovery

However, the Saudis warn of the "inevitability" of hiccups in our recovery: File Image/PixaBay

More gains for crude came on Friday, but a sense of unease was said to be infesting the investment community due to the resurgence of the coronavirus infections in some U.S. states, which in turn caused Apple to announce that it would temporarily re-close certain stores.

Oil also pulled back from earlier highs after Eric Rosengren, president of the Boston Federal Reserve, said more fiscal and monetary support for the U.S. economy would likely be needed due to the unemployment rate in that country anticipated to reach double digit levels at the end of this year.

However, despite analytical prognostications (which are often proven wrong) and perhaps too much attention paid to the activities of the tech giant, traders still took solace in the economic recovery from the government mandated lockdowns continuing to play out quicker and stronger than expected.

Accordingly, Brent on Friday rose 61 cents to $42.12 per barrel, while West Texas Intermediate  was 75 cents higher at $39.53 per barrel.

The benchmarks were each headed toward a weekly gain - its seventh in the past eight weeks - of 9 percent, contributing to a recovery for the commodity that many analysts insist has been oversold and can't be sustained.

Another development that may have buoyed traders was news that Brent on Thursday moved into backwardation, whereby oil for immediate delivery costs more than supply later, for the first time since March: this indicates tightening supply and encourages storage to be drawn down.

Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy, said, "The floating storage, in particular in the (U.S.) Gulf Coast, is already decreasing as buyers are opting for taking out the floating tankers rather than engaging into a new booking."

Although the concerns said to be capping oil's gains are the result of news media's relentless coverage of the new coronavirus outbreaks, experts who take a longer view of world affairs remain bullish about the ability of nations to rebound from the pandemic lockdowns: this was the case made by Kirill Dmitriev, CEO of the Russian Direct Investment Fund, who on Friday noted that "We already see that economies have started to emerge from the coronavirus and markets are recovering, supporting oil demand, so there is no point to extend strict curbs for longer than a month."

He was referring to the Organization of Petroleum Exporting Countries (OPEC) and its allies cutting output by a record 9.7 million barrels per day (bpd) in an attempt to balance supply and demand during the pandemic.

For his part, prince Abdulaziz bin Salman, energy minister for Saudi Arabia, suggested that setbacks in the road to recovery should be taken in stride: "The world economy has embarked on the long journey of easing the lockdowns, but there will inevitably be setbacks and reversals; the possibility of a second wave of infections cannot be ruled out."

But as crude traders who caused oil to move upward yet again on Friday seem to understand, for every alarming coronavirus headline there are  good news reports pertaining to the virus, albeit buried in the back pages.

Case in point: from July 1, international travellers who test negative for the virus will be able to visit Iceland with no restrictions, as that country celebrates having started off with one of the highest infection rates in Europe and now boasts one of the lowest death rates in the world due to extensive testing and tracking (Iceland is currently making an aggressive push to restart its tourism business).

Additionally, while Iceland prime minister Katrin Jakobsdóttir, expressed concern over the possibility of a second wave of the virus, she was more focused on her country's economic well being, stating that "We are not very used to high unemployment rates, so our guidelines now in the government will be how to lower that number and to have more people working again."

Supporting the optimism of the prime minister and others like her were yet more under-reported news items on Friday of continued breakthroughs in COVID-19 treatment and vaccine development, this time from the Mayo Clinic, which revealed that a study of 20,000 hospitalized covid-19 patients who received transfusions of blood plasma from people who recovered found the treatment was safe and suggests giving it to people early in the disease may be beneficial.