Oil prices were lifted on Thursday by an unexpected drop in U.S. crude stocks, but gains were capped by both a bleak outlook for the world’s no. 1 economy as the coronavirus pandemic crushes fuel demand and concern over a potential second wave of cases.
U.S. West Texas Intermediate (WTI) crude futures were up 18 cents, or 0.7%, to $23.23 a barrel.
Brent crude futures were up 48 cents, or 1.56%, at $29.94 per barrel at 0401 GMT.
Prices have risen in the past two weeks as some countries relaxed coronavirus restrictions and lockdowns to allow factories and shops to open again. But new cases have emerged in South Korea and China, raising concerns over a possible second wave of infections which would weigh on economic recovery and fuel demand.
U.S. Federal Reserve Chairman Jerome Powell warned on Wednesday of an “extended period” of weak economic growth and called for additional fiscal spending to stave off the fallout from the virus.
“It is hard to get excited about a steady rebound for crude demand when the world’s largest economy has significant uncertainty about the outlook and big downside risks,” said Edward Moya, senior market analyst at OANDA.
A drop in U.S. crude inventories provided some support to prices early in the trading session, but Moya said much bigger drawdowns over the next few weeks would be needed to boost prices.
U.S. crude inventories fell by 745,000 barrels to 531.5 million barrels in the week to May 8, marking the first decline since January, the Energy Information Administration said on Wednesday. Analysts in a Reuters poll had forecast a 4.1 million barrel increase.
Amid the slump in fuel use, the Organization of Petroleum Exporting Countries (OPEC) said on Wednesday it expects 2020 global oil demand to shrink by 9.07 million bpd, worse than its previous contraction forecast of 6.85 million bpd. It said it also expected the second quarter to see the steepest decline in demand.
ING Economics said in a note the lowering of demand forecasts made for “bearing reading”.
“(Second-quarter) demand for OPEC oil is just 16.77 million bpd, well below OPEC output levels, even when full compliance of OPEC+ cuts are taken into consideration,” ING added.
OPEC+, a grouping of OPEC and other producers including Russia, agreed in April to curtail production by 9.7 million barrels per day (bpd) in May and June. Saudi Arabia, de facto leader of OPEC, also said it would cut its own output by an additional 1 million bpd to 7.5 million bpd starting in June.