Positive signs of recovery in U.S. and China

3 minutes
Positive signs of recovery in U.S. and China

The oil reported the biggest weekly gain since early March as signs emerged of a recovery from the pandemic gaining momentum in the US and China.

Futures in New York advanced on Friday 6.4% despite a small loss. On the heels of robust economic figures from China in the data, gross domestic product climbed 18.3% in the first quarter from a year before as consumer spending beat forecasts. In March, China's refiners processed about 20% more crude than a year earlier, pointing to the strength of the recovery in the country.

Analysts brought their forecast for the global benchmark Brent by four months to May to$ 170 a barrel again with a boost in U.S. demand likely to bring inventories for countries of the Organization for Economic Co-operation and Development in line sooner than expected.

The world's two largest economies are starting to shine, and despite the difficulties in Europe, they start to get vaccinations going as well, said Edward Moya, senior market analyst at Oanda Corp. Having Europe, China and the U.S. for the most part looking at a return to normalcy, that speaks volumes for the demand outlook, which is very supportive for higher prices.

Prices this week escaped the tight trading range they had been in for nearly a month, with upbeat developments from the world's two largest economies helping lift the outlook for demand. The International Energy Agency joined the major oil organizations in boosting its consumption forecasts earlier this week, with the IEA citing the improving situation in the United States and China.

In Asia, a Japanese mega-refiner and some Chinese oil companies have been preparing for the crude cargoes, which they can take down for the real market. With Asian market buying going up, the indexes of economic strength have also climbed. Brent's nearest time frame was on Friday in a bullish backwardation of 48 cents a barrel compared to as little as 37 cents on Wednesday.

We are closing the gap on gasoline and jet fuel, said Peter McNally, global head of industrials, materials and energy at Third Bridge. This summer international travel is not going to be forthcoming, but as far as the two biggest markets- China and the U.S.- it's encouraging.

Commodities faced a broad-based surge this week, with oil and metals both topping key technical levels alongside a weaker dollar and lower US Treasury yields. The 26-member Bloomberg Commodity Spot Index broke out to the highest since late February after hedge funds trimmed their net bullish positions for six straight weeks.

While the oil market is expecting an increase in supply in the coming months, although the Organization of Petroleum Exporting Countries said this week that global demand should allow for rising stockpiles to deplete. Exports of Russia's flagship Urals crude are expected to climb in the first five days of May, a move that pressured swap markets linked to the market.

Complicating the picture, talks are continuing between Iran and world powers over the revival of a 2015 nuclear deal, a return to which could see the U.S. lifting sanctions on the Iranian Gulf nation's oil exports. In recent days however, the progress on the talks has been uncertain.

Despite strong recovery signals from China and the U.S. covid 19 continues to slow growth elsewhere. In India, refineries are transferring oxygen produced from their plants to hospitals to help combat a serious second wave, which has led to fuel sales soaring during the first half of April compared with a month earlier.

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