Oil Rises on Demand Optimism and Gasoline Strength, Reports Reuters

By Laura Sanicola

Oil prices climbed on Monday, driven by optimism regarding a recovery in demand in China following encouraging signs of decreasing coronavirus cases in the areas most affected by the pandemic.

Futures for July delivery increased by $2.69, settling at $114.24 per barrel, a gain of 2.4%. Meanwhile, U.S. West Texas Intermediate (WTI) crude rose $3.71, or 3.4%, to $114.20 per barrel.

Shanghai officials announced plans to reopen broadly and allow the city’s 25 million residents to return to normal life starting June 1, as 15 of its 16 districts reported no COVID-19 cases outside of quarantine areas.

Nonetheless, approximately 46 cities in China remain under lockdown, impacting shopping, manufacturing output, and energy consumption.

"We are seeing numerous signals that demand will start to return in that region, supporting higher prices," noted Bob Yawger, director of energy futures at Mizuho.

Amid an unexpected sharp decline in industrial output in April, China processed 11% less crude oil, marking the lowest daily throughput since March 2020.

U.S. gasoline futures reached an all-time high once again on Monday, driven by declining stockpiles that intensified supply concerns. According to data from the U.S. Department of Energy, stockpiles in the Strategic Petroleum Reserve dropped to 538 million barrels, the lowest level since 1987.

"Record high gasoline prices have not yet shown signs of demanding destruction, with the U.S. economy appearing robust enough to support a strong start to the heavy driving season in just a few weeks," commented Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

Oil prices also received some support from optimistic statements made by European Union diplomats regarding progress toward a phased embargo on Russian oil, despite ongoing supply concerns in Eastern Europe.

However, EU foreign ministers were unsuccessful in pressuring Hungary to lift its veto against the proposed oil embargo, with Lithuania remarking that the bloc was being "held hostage by one member state."

German Foreign Minister Annalena Baerbock indicated that the EU would need a few more days to reach an agreement.

"Given the planned EU ban on Russian oil and the slow increase in OPEC output, oil prices are likely to remain near current levels of around $110 a barrel," stated Naohiro Niimura, a partner at Market Risk Advisory.