Oil climbed toward $70 a barrel Thursday as traders assessed an uneven recovery in global demand, with falling U.S. stockpiles pointing to rising consumption even as virus-hit India struggles. Global benchmark Brent, which just failed to top that level on Wednesday, was 0.3% higher after erasing an early decline.
While major crude importer India is battling a record coronavirus wave that’s sapped economic activity, there are signs of rising oil consumption in the U.S., Europe and China. Data showed American stockpiles declined last week to the lowest since February. Oil has rallied in 2021 as key economies including the U.S. and China rebound from the impact of the pandemic, fanning energy demand.
The strength in crude forms part of a broad advance in raw materials, with the Bloomberg Commodity Spot Index surging to the highest level in almost a decade. Still, the outbreak has rapidly worsened in India since the start of April, and the country is now reporting more than 350,000 cases every day. Saudi Arabia’s state energy firm, Saudi Aramco, reduced June pricing to Asia by between 10 and 30 cents per barrel.
The key Arab Light grade for the region was cut to $1.70 a barrel above the benchmark, from $1.80 for May. “The failure of Brent to break above $70 per barrel highlights that there is still plenty of concern over the demand outlook,” said Warren Patterson, head of commodities strategy at ING Group. “India is a worry for the market, particularly if we eventually see a national lockdown.”
Elsewhere in Asia, Tokyo wants to extend a virus emergency currently in place and will seek approval from Prime Minister Yoshihide Suga, in a bid to stem a surge in infections ahead of the capital hosting the Olympics from July.
Oil prices are at risk of a correction, according to Bloomberg Intelligence analyst Henik Fung, who cited the threat posed by India’s crisis as well as higher OPEC+ supply. The Organization of Petroleum Exporting Countries and its allies are raising output by about 2 million barrels a day through to July.
In the U.S., government data showed crude stockpiles contracted by nearly 8 million barrels last week and exports surged, but gasoline inventories rose for the fifth straight week. Separately, pent-up travel demand in the country is seen spurring a 30% jump in jet fuel use this summer.