Oil Up On Renewed Demand Confidence, But Caution Prevails

Trading has been influenced by arguably misplaced hopes and expectations: File Image/ Pixabay

Relying largely on expectations, traders expressed confidence in rising demand in the U.S. and China, and on Monday two key benchmarks eked out modest gains.

After the AAA forecast that this year's Memorial Day travel activity will be the highest since 2005, with road trips at a record since 2000, West Texas Intermediate settled up 86 cents, or 1.1 percent, at $79.12 per barrel.

Concurrently, weekend data from China showing consumer prices rising for a third straight month in April while producer prices extended declines caused Brent to settle up 57 cents, or 0.7 percent, at $83.36 per barrel.

But also on Monday, the pattern of questionable information informing analytical pronouncements and in turn influencing traders continued: Canada's federal government, notorious on the global stage for its hyperbole, pronounced that the latest round of annual wildfires could be "catastrophic", and this prompted Alex Hodes, analyst at energy brokerage StoneX, to state, "Canadian oil sands production currently has a 3.3 million barrel daily capacity, which is very likely to be affected moving into the summer."

In another case of potentially false expectations, traders indicated their earlier expectations for a ceasefire between Israel and Hamas were dashed with the former's attack into North Gaza on the weekend.

Aldo Spanjer, senior commodities desk strategist at BNP Paribas, told Bloomberg, "It's been a reasonably wild ride if you go back for the last couple of months.

"Right now, not many people will see the fundamentals as supportive to bring supplies back" regarding possible upcoming production decisions from the Organization of the Petroleum Exporting Countries (OPEC).

For the record, it is expected with Tuesday's release of OPEC's latest monthly report that if the cartel does not decide to reduce its voluntary production cuts in July, then it's an indication oil demand will remain strong in the second and third quarters, lending further support to the market. 

In other oil news on Monday, the U.S. Energy Information Administration noted in its monthly Drilling Productivity Report that production in the top basins in the American shale patch would hit 9.85 million barrels per day (bpd), a  volume not seen since December.

Production per new drilling rig in the Permian Basin should hit 1,400 bpd in June, compared to 1,386 in May, and overall output is expected to rise to 6.19 million bpd for a total rise of nearly 18,000 bpd.