WTI pierces $30, rallying on demand hopes

• The price of oil is over 2% higher on Monday following a week of bullish news.
• We are starting to see a rebound in underlying demand.

The price of a barrel of oil is higher in the open this week. West Texas Intermediate (WTI) reached its highest price since March as investor note strengthening fuel demand with easing travel restrictions. Governments are encouraging their nation's populations to get back to work and normal activities slowly following weeks of lockdown in an attempt to slow the spread of the coronavirus. 

At the time of writing, WTI is trading at $30.40 having travelled from a low of $29.59bbls to a high of $30.49bbls.  The price is over 2% higher on Monday following a week of bullish news and a third consecutive week of gains. West Texas Intermediate (WTI) oil settled up $US1.87, or 6.8 per cent at $US29.43 a barrel, just off the session peak of $US29.92, its highest since mid-March. WTI climbed 9 per cent in the previous session.

EIA has also increased last month's demand expectations

Markets have cheered the Organisation of the Petroleum Exporting Countries and other major producers cutting supplies to reduce the glut. At the same time, we are starting to see a rebound in underlying demand. For instance, the latest data has shown how China's daily crude oil use rebounded in April with refineries ramping up operations. There will be close eye kept on the IEA data over the coming weeks in this respect. The EIA is expecting global crude inventories to drop by about 5.5 million barrels per day (bpd) in H2. The EIA has also increased last month's demand expectations for demand by 690,000 bpd.

"Energy markets continue to firm despite a more negative risk sentiment environment — implying that the recovery in the complex is resilient enough to withstand ebbs and flows in risk appetite," analysts at TD Securities explained.

This comes amid pledges from Gulf countries to accelerate the Great Rebalancing by further trimming their oil sales, just as the US marks its first inventory draw at Cushing for the first time during the coronavirus trading regime.

As the rate of inventory accumulation continues to ease, so will the steepness of the super-contango.

We remain long WTI Dec20-Dec21 spreads to express this view. With that said, CTAs remain positioned for further downside, and we do not expect significant flow from this group of participants.