Home Public Procurement Crude rallies as market eyes tightened global supply picture

Crude rallies as market eyes tightened global supply picture

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Highlights

Noble, EOG, Baytex announce production cuts

WTI up 25% on the week

Better-than-expected US jobs report sees unemployment hit post-WWII high


New York —
Oil futures rallied in final minutes of trading to settle up 5% on the day as the global supply picture in the wake of more producers announcing cuts Friday.

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NYMEX June WTI settled up $1.19 at $24.74/b, the highest front-month print since April 8, and ICE July Brent was up $1.51 on the day at $30.97/b. WTI climbed 25% over the past five days as numerous upstream players have announced capex reductions and production cuts in first quarter earnings this week.


Noble Energy has said voluntarily curtailments will reach 5,000-10,000 b/d in May from its US onshore plays, rising to around 30,000-40,000 b/d in June, its top executives said Friday (see story 1949 GMT).


EOG Resources will temporarily shut-in production for at least four months, including 125,000 b/d in May, and 100,000 b/d in June owing to recent low crude prices from the global coronavirus pandemic, top company executives said Friday. The company had previously shut in 24,000 b/d in April (see story 2001 GMT).

Canadian producer Baytex Oil announced that it would trim output by 25,000 boe/d, 80% of which is heavy oil.

On Thursday, Marathon Oil said it was refocusing investment away from the Permian Basin in favor of the Eagle Ford and Bakken Shale plays, and Hess announced that it plans to reduce its Bakken rig count to one by the end of May.

At least 92 operators worldwide, including at least 37 US-based oil companies, have slashed capital expenditure guidance by an aggregate $100 billion, an average cut of 27%, as of Tuesday, Platts Analytics data showed. In total, US upstream players have shut in at least 1.335 million b/d of output, according to Platts Analytics data.

Analysis of options data provided by MarketView shows an put to call ratio for open interest on the June WTI contract of 0.93 on Thursday, indicating a preponderance of bullish sentiment. However, implied volatility, a measure of downside risk in the market, was at 100% as of Thursday. Open interest and implied volatility data are day-behind.

NYMEX June ULSD settled up 6.22 cents at 89.93 cents/gal and June RBOB climbed 2.08 cents to 95.22 cents/gal.


The steady stream of producer cuts allowed the market to look past an expected, but nevertheless grim, US employment report Friday morning.

Total US non-farm payrolls dropped by 20.5 million in April, pushing the nationwide unemployment rate to a post-World War II record high 14.7%, the Labor Department said Friday.

Despite the bearish top line figure, the number of job losses came in well under market forecasts earlier this week calling for a payroll decline of more than 22 million jobs. Additionally, approximately 88% of the job losses were reported as temporarily layoffs, indicating that approximately 89% of the total job losses could return as US states continue to relax restrictions on non-essential travel and trade.

The relatively small number of permanent job losses, which rose 544,000 to around 2 million, was supportive for crude prices, OANDA senior market analyst Edward Moya said, and was a “potential sign that crude demand will pick up strongly in the US once they come out of the other side of the coronavirus.”

Roughly 35% of gasoline used is for driving to and from work, so as US workers trickle back to their jobs, May gasoline demand is expected to increase by 1.234 million b/d over April, S&P Global Platts Analytics forecast.

But lingering, widespread unemployment could blunt these forecasts.

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