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Futures Movers: Oil prices gain as traders mull demand cues, supply prospects

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Oil futures gained on Monday, finding some support from reports of a production halt at some Libyan oil fields, as traders mulled the latest signals for crude demand outlook, as well as prospects for global supplies.

There is some chatter about demand concerns “with new lockdown measures being imposed in India and other COVID-19 hotspots around the globe, however, so far the cautious news flow is not enough to derail the 2021 rally,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

Still, this year’s energy rally has lost momentum in recent weeks and U.S. benchmark crude prices have “fallen into a sideways trading range since the highs of early March were established,” he said.

Likely providing some support on Monday, S&P Global Platts reported that production in several of Libya’s major eastern oil fields have been shut down. According to the report, a spokesman for state-owned National Oil Corp. subsidiary Gulf Oil Co. said it halted pumping at its fields because of the government’s failure to send federal funds since September for operations. S&P Global Platts said the subsidiary known as Agoco operates eight oil fields with a total capacity of 250,000 barrels per day.

The production loss out of Libya “could be acting as a mild geopolitical tailwind for oil prices,” said Richey. However, unless this turns into a drawn-out issue that impacts Libyan oil production for a prolonged period, such as a few months, “it should not have a lasting or meaningful impact on global fundamentals.”

For now, the global oil supply outlook looks fairly steady given continued commitment from the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, to supporting prices via production caps, so “traders are more focused on the demand side of the market,” Richey said.

West Texas Intermediate crude for May delivery
CL.1,
+0.51%

CLK21,
+0.51%

rose 25 cents, or 0.4%, to settle at $63.38 a barrel on the New York Mercantile Exchange. June Brent crude
BRN00,
+0.07%

BRNM21,
+0.07%
,
the global benchmark, added 28 cents, or 0.4%, at $67.05 a barrel on ICE Futures Europe.

Prices for both crude benchmarks ended Friday with gains of more than 6% for the week, getting a lift in part from a strong economic report from China and a higher demand forecast from the International Energy Agency.

“We can certainly see some risks on the demand side: in emerging economies in particular, which are responsible for a large part of the recovery in demand, numbers of new COVID-19 infections have jumped sharply of late, which could jeopardize the economic recovery there,” wrote Eugen Weinberg, commodity analyst at Commerzbank, in a note.

“This is presumably why demand for fuel in India, the world’s third-largest crude oil importer, has declined again recently,” he said, noting data from state refinery companies that showed diesel demand in the first half of April fell 3% to 1.38 million barrels a day. Meanwhile, gasoline demand, which tends to track private consumption, dropped by 5% to 561,000 barrels a day, he noted.

India has replaced Brazil as the country with the second highest number of cases at 15.1 million, and is fourth globally by deaths at 178,769. Brazil is third by cases at 13.9 million and second with a death toll of 373,335 Mexico is third by deaths at 212,339 and 14th highest by cases at 2.3 million. 

Also on the bearish side, the U.S. and Iran “appear to have made progress in the latest round of talks surrounding U.S. sanctions and the Iranian nuclear deal, despite a recent threat by Iran to enrich uranium up to weapons-grade levels,” said Robbie Fraser, global research and analytics manager at Schneider Electric. A return to the 2015 nuclear deal could open the door for 2 million barrels a day of Iranian exports, he said.

Read: Why oil traders should keep an eye on Iran even as nuclear talks look unproductive

Still, analysts said a weaker tone for the U.S. dollar on Monday helped offset pressure on crude. The ICE U.S. Dollar Index
DXY,
-0.51%
,
a measure of the currency against a basket of six major rivals, was down 0.5%.

A softer dollar can be a positive for commodities priced in dollars, making them cheaper to users of other currencies.

Among the petroleum products traded on Nymex, May gasoline
RBK21,
+0.35%

edged up by 0.2%, to nearly $2.05 a gallon, while May heating oil
HOK21,
+0.01%

shed 0.2% to trade at $1.89 a gallon.

Natural-gas futures added 2.6% to $2.75 per million British thermal units.

The National Oceanic and Atmospheric Administration’s weather outlooks show below-normal temperatures lingering across the eastern and central U.S. at least through May 2, which “continues to support heating demand expectations” for natural gas, said Christin Redmond, commodity analyst at Schneider Electric.

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