US oil prices continued to rise Tuesday, buoyed by an anticipated increase in demand as the economy slowly restarts following the government-imposed lockdown to curb the spread of the novel coronavirus.
Goldman Sachs said global demand for oil has increased by 2.5 million barrels a day from its low point in early April.
Worldwide prices also climbed Tuesday as Europe and China began to crank up production.
West Texas Intermediate crude, the benchmark for US prices, rose 22.46 percent in late afternoon trading Tuesday to $24.97 a barrel. Brent crude, the worldwide benchmark, rose 1.36 percent to $31.40 a barrel. Oil is generally regarded as a proxy for future economic activity.
In recent months, US production fell but not enough to compensate for the oversupply, which drove prices lower.
An agreement by OPEC to cut production took effect May 1. That followed a price war between Saudi Arabia and Russia to gain market share that flooded the market with cheap oil and drove prices still lower.
Despite the rise in oil prices for the fifth consecutive day Tuesday, there was no sign of an immediate turnaround.
Neil Wilson, chief market analyst at markets.com, warned, “The idea that we will be moving around anything like before is fanciful, at least in the near term.”
But Naeem Aslam, chief market analyst for AvaTrade, told Business Insider: “All of this optimism has helped oil prices record the longest run of daily gains in more than nine months. This further strengthens the argument that the worst may be over for oil. The supply and demand curve may reverse its course.”
No one knows how the economic restart will unfold, but there are almost certain to be some unanticipated wrinkles. The problem of storage capacity could be resolved if demand remains strong, but this is uncharted territory, and demand may falter if the recovery wavers.
The difference between spot prices (what it costs to buy a barrel of oil today) compared with futures contracts (what it costs to buy at a predetermined date a month or more away) has narrowed. That has reduced the incentive for traders to put oil into storage until the price increases.
Crude oil prices plunged worldwide as demand fell, and US prices turned negative for the first time in history two weeks ago as supply exceeded storage capacity in Cushing, Oklahoma, a key pipeline junction.
In response, traders and oil companies stored crude on idled tankers and in salt caverns. For a short time, there was no place to store excess supply, and in desperation, some considered using railroad tank cars as a stopgap measure.
Matt Elkott, a freight transportation analyst at Cowen and Co, said available railroad tank-car storage capacity in North America could, in theory, handle about 25 million barrels of crude oil.
“There is no evidence of oil being deployed to tank cars for storage yet,” he said in a research report. “Equipment suppliers do not appear to have had many promising customer inquiries in this regard.
“Additionally, railroads would most likely be opposed to the idea, even if regulators provided a temporary exemption for storage. One other concern is that storing oil in tank cars would accelerate their corrosion. The use of tank cars for storage cannot be ruled out, but is unlikely, at least for now,” he said.
In the US, BNSF Railway and Union Pacific Railroad said they aren’t interested in the business, while Canadian Pacific and Canadian National showed little interest, the Cowan analyst said.
Low prices have roiled the oil industry.
Marathon Petroleum’s shares are down about 48 percent since Jan 1, and about 55 percent below the 52-week high of $69.65 set Oct 29, 2019.
Marathon Petroleum on Tuesday reported a first-quarter loss of $2.7 billion compared with a profit of $503 million a year ago.