Oil Prices Rise, But Outlook Muddies

Oil futures posted mild gains on Tuesday, tracking major stock indexes amid supportive macroeconomic data, but prices remain rangebound. In London, ICE Brent crude for June delivery grew by 39¢ to $63.67 per barrel, while in New York, May West Texas Intermediate (WTI) on Nymex rose 48¢ to cross a psychological threshold and end at $60.18/bbl. The WTI June contract, meanwhile, gained 49¢ to finish the session at $60.24, keeping the front of the WTI in contango, a price structure whereby prompt oil is cheaper than later deliveries. Generally, contango reflects a surfeit of supply and incentivizes buyers to delay purchases. By contrast, Brent’s forward curve is in backwardation, with June deliveries trading at a premium to later-dated contracts. This tends to signal a market in need of more oil. However, backwardation is narrowing. The price structure could slow purchasing in the spot market by prompting refiners to rely more on stored barrels of crude given relatively higher near-term prices, Tamas Varga of oil brokerage PVM explained. Crude drew some support from news that Chinese oil imports rose by more than a fifth in March, while Opec raised its incremental demand forecasts by some 70,000 barrels per day for 2021 to just over 5.9 million b/d growth from 2020 (IOD Apr.13'21). Vaccine Woes Meanwhile, the dollar weakened after data showed lower-than-anticipated inflation in the US, helping to offset news that some states would suspend administration of the Johnson & Johnson Covid-19 vaccines after six people developed blood clots, resulting in one death. More than 6 million people have received the Johnson & Johnson vaccine in the US, meaning the chances of developing a clot are approximately one in 1 million. But regulators said they were operating out of an abundance of caution. “[That] is potentially dealing a blow to efforts to reopen the world’s largest economy, but following the inflation data, futures jumped,” noted Fawad Razaqzada of ThinkMarkets. Analysts say a weak dollar tends to be supportive for crude by making the commodity less expensive. However, most of the higher price action was limited to crude oil; May gasoline on Nymex only rose just over half a penny to close at $1.9757 per gallon, while diesel ended the session 0.6¢ higher at $1.8145/gallon. Refiners still face dismal margins in many regions. Without higher fuel consumption eating into product inventories, downstream players have little incentive to open the throttle and buy more crude. From a technical perspective, oil is in the doldrums. Analysts with Icap peg the next key support and resistance points for Brent at $62.20/bbl and $64.30/bbl, respectively, a $2.10 range. WTI is in a similarly sized no-man’s land. “Between support and resistance, we are stuck in neutral gear,” said Icap’s Brian LaRose. Frans Koster, New York