Crude prices extend gains on hopes for a summer oil demand recovery

(Bloomberg) --Oil advanced as rising optimism around a demand recovery in regions such as the U.S. offset Covid-19 flare-ups in parts of Asia.

Futures in New York climbed as much as 1.4% on Monday. The U.S. and China, along with parts of Europe, are rapidly recovering from the pandemic as vaccinations accelerate. In the U.S., passengers at airports jumped to the highest since the pandemic began. However, Indian fuel demand continued to weaken in the first half of May.

The oil market’s structure is showing signs of strength. The premium for global benchmark Brent’s nearest contract over the next one has started widening again, signaling a tightening market.

“More reopenings in Europe, consumer confidence and travel normalizing” are all boosting confidence in a demand rebound, said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago. In the U.S., “more and more people are getting vaccinated and those people are now traveling.”

Crude is up over 4% so far this month, though a further price breakout is being held back by a tepid recovery in Asia, where the coronavirus is crippling key importer India, and Singapore and Taiwan grapple with new outbreaks. Another wildcard is the prospect of more crude flows from Iran as the nation seeks to revive a nuclear deal and free itself of U.S. sanctions. Talks are ongoing, however, and progress on a solution remains uncertain.

Meanwhile, the steady recovery in U.S. air travel continues. On Sunday, the number of people passing through Transportation Security Administration checkpoints at airports surged to 1.85 million, the highest since March 2020. United Airlines Holdings Inc. said it plans to operate 80% of its pre-pandemic U.S. schedule.

Prices:

• West Texas Intermediate for June delivery rose 78 cents to $66.15 a barrel at 12:15 p.m. in New York
• Brent for July settlement gained 69 cents to $69.40 a barrel

There were some additional reasons for physical markets to be tentatively optimistic. Last week, India’s biggest refiner was looking to buy crude for the first time in a month. Meanwhile, a unit of a giant Chinese refiner issued a purchase tender on Monday.

Other oil-market news:

• The Environmental Protection Agency ordered the shutdown of a U.S. Virgin Island refinery that historically was positioned as a key fuel source for the East Coast due to public health concerns.
• Ampol Ltd. will continue refining at its Lytton plant until at least mid-2027, as the Australian government provides financial support for the nation’s remaining processors.
• Iranian Oil Minister Bijan Namdar Zanganeh said he will retire and won’t accept any other political title or professional government position after current President Hassan Rouhani ends his presidency later this year, the oil ministry’s news service Shana reported.