Oil prices rise on signs an industrial recovery is underway

By Andres Guerra Luz and Grant Smith on 9/15/2020

(Bloomberg) –Oil rose after economic data from China to the U.S. sparked optimism that an industrial recovery is underway, offsetting a bleak assessment of demand by another top energy organization.

Futures gained as much as 2% in New York, alongside a rally in U.S. and European equities. Chinese retail sales rose for the first time this year in August, while industrial production expanded more than expected. In the U.S., manufacturing in New York state expanded in September at the second-fastest pace since 2018.

Still, the International Energy Agency was the latest to join the chorus of bearish views on oil demand, following pessimistic calls this week from BP Plc, Trafigura Group and OPEC. The market outlook has grown “even more fragile” with a resurgence of the pandemic, the IEA said Tuesday.

Despite how “depressing the IEA report was, there’s hopeful signs this morning about positive sentiment in the manufacturing sector,” said John Kilduff, a partner at Again Capital LLC. “Beyond transportation, you really need industrial demand to kick in, factories to be hopping, for there to be a market increase in consumption.”

Oil is back to trading in a tight range following its swift descent in the first two weeks of September, which took global benchmark crude futures below $40 a barrel. Market participants are searching for signs of when consumption may return to normal, but the road to recovery has been spotty as the pandemic flares up around the world. In the meantime, fuel demand remains depressed, with U.S. gasoline demand tumbling in the first week of September and outpacing declines from the same time last year.

“The market has now priced in the bleak demand recovery projections and the supply comeback,” said Bjornar Tonhaugen, an analyst at consultant Rystad Energy A/S in Oslo. “We are now at a stage where until things get better at the demand front, prices may swing around the same mark for a while.”

Prices:

  • West Texas Intermediate for October delivery rose 32 cents to $37.58 a barrel as of 10:45 a.m. in New York
  • Brent for November gained 31 cents to $39.92

Still, not everyone is taking as a grim a view on the oil market. Offering a starkly more bullish outlook than some of its rivals, Vitol Group said inventories have been falling sharply and will continue to decline this year.

“You can’t lose sight of the fact that production has been curtailed,” Vitol Chief Executive Officer Russell Hardy said in an interview during the Platts APPEC 2020 conference. A lot of stock draws are expected to come from refineries digesting what they had amassed during the frenzied buying of cheap oil, he said.

Meanwhile, inventories in the world’s biggest consumer are expected to rise for a second week in a row, according to a Bloomberg survey before official U.S. government data on Wednesday. Figures from the industry-funded American Petroleum Institute are due later Tuesday.

Other oil-market drivers:

  • Premier Oil Plc and Chrysaor Holdings Ltd. have held preliminary talks about a potential deal that would bring together two of the largest UK oil and gas producers, according to people with knowledge of the matter.
  • Lonestar Resources US Inc., one of a string of U.S. shale oil and gas producers struggling amid low energy prices and high debt loads, entered into a restructuring agreement with lenders that envisions a Chapter 11 filing.
  • Hurricane Sally has weakened as it approaches the U.S. Gulf Coast, with hurricane warnings being replaced by tropical storm alerts and a number of further storm warnings being discontinued.