Crude Stable As Optimism Builds Over OPEC Output Compromise

Meanwhile, demand recovery is exemplified by tanker lineup in Chinese waters: File Image/PixaBay

For the most part, crude traders' concerns on Monday about rising tension between the U.S. and China were nullified by optimism that Russia and the Organization of the Petroleum Exporting Countries (OPEC) were closing in on a compromise to extend their oil output cuts.

As a result crude prices remained steady, with Brent rising 48 cents, or 1.3 percent, to settle at $38.32 per barrel, and West Texas Intermediate falling just 5 cents, or 0.1 percent, to settle at $35.44 per barrel.

The optimism over the output cuts was based solely on rumour that OPEC and Russia were discussing rolling over the curbs one to two months instead of half a year and that Algeria has proposed that OPEC+ hold a meeting on June 4 rather than the previously planned June 9-10.

More substantial good news on Monday was delivered by Bank of America, which has assessed growing demand in the wake of the government-mandated coronavirus lockdown easements and concluded that North America oil shut-ins peaked in May.

The bank's Global Research report states, "Oil prices have strengthened to levels where shutting-in no longer makes sense and should actually encourage producers to quickly restore production."

More good news in these early days of the easement era was provided by Bloomberg, which on Monday noted that "queues of tankers have formed off China's busiest oil ports as the vessels wait to offload crude for refineries that are quickly ramping up production amid a rapid rebound in fuel demand."

Serena Huang, a Singapore-based analyst at Vortexa Ltd.,said, "China's demand recovery and current low oil prices have prompted refiners, especially the independents, to ramp up crude runs; this crude import momentum could be rolling over to June if refiners' appetite remain strong."

Most of the vessels are Suezmaxes and Very-Large Crude Carriers, collectively carrying about 4 million tons or more of oil from  Russia, Colombia, Angola, and Brazil.

Meanwhile, for those fearful of how government might react if a second wave of the virus hits late this year, good news from Italy: Alberto Zangrillo, the head of the San Raffaele Hospital in Milan, which bore the brunt of the contagion, said, "The swabs that were performed over the last 10 days showed a viral load in quantitative terms that was absolutely infinitesimal compared to the ones carried out a month or two months ago."

Matteo Bassetti, head of the infectious diseases clinic at the San Martino hospital in Genoa, agreed, stating, "The strength the virus had two months ago is not the same strength it has today; it is clear that today the COVID-19 disease is different."

Zangrillo added that some experts were alarmist about a second wave of infections, and that "We've got to get back to being a normal country; someone has to take responsibility for terrorizing the country."