Oil moves mixed on easing lockdowns, looming storage shortage

LONDON (Reuters) – Oil prices were mixed on Tuesday as optimism about the easing of coronavirus-related restrictions reassured markets, although traders remained cautious with storage capacities filling up fast and supply cuts not deep enough to counter falling demand.

Brent crude LCOc1 rose 41 cents, or 2{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, to $20.40 a barrel at 1006 GMT, following a 6.8{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} slide on Monday.

U.S. West Texas Intermediate (WTI) crude CLc1 was down 78 cents, or 6{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, at $12.00 a barrel. The contract plunged 25{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} on Monday.

“While wild price swings are set to last in the very near term, we see more upside than downside from prices around $20 per barrel. The oil price should recover in the longer term,” said Norbert Rücker, analyst at Swiss bank Julius Baer.

From Italy to New Zealand, governments announced the easing of restrictions, although Britain said its too dangerous to relax a lockdown for fear of a deadly second outbreak. More parts of the United States looked set to restart business.

German retailers sought on Tuesday to persuade the government to let all stores operate normally from May 4, saying the decision to only allow smaller stores to open was confusing for customers.

“While we expect oil demand to modestly recover from the April lows as countries ease some lockdown measures, demand will remain under severe pressure in the near term because of the COVID-19 pandemic,” said UBS commodities analyst Giovanni Staunovo.

BP (BP.L) Chief Executive Bernard Looney told Reuters his firm expected global oil demand to drop by about 15 million barrels per day (bpd) in the second quarter due to coronavirus-related movement restrictions.

For a graphic on world population under lockdown, click here

That is more than the 10 million bpd of cuts agreed by the Organization of the Petroleum Exporting Countries, Russia and other allied producers. The reductions are due to be implemented from May 1.

Russian Energy Minister Alexander Novak said on Tuesday oil markets would start balancing out once an output deal took effect, but no significant rise in prices was likely in the near future due to high levels of global storage.

Analysts said part of the WTI decline was due to retail investment vehicles like exchange-traded funds selling out of the front-month June contract and buying into months later to avert massive losses like last week, when WTI fell below zero.

The United States Oil Fund LP (USO) (USO.P), the largest oil-focused U.S. exchange-traded product, said it would further shift its holdings into later-dated contracts.

“The exodus in our view remains motivated by concerns over the saturation of storage capacity at Cushing and the associated risk of negative pricing,” Harry Tchilinguirian, global oil strategist at BNP Paribas, told the Reuters Global Oil Forum.

For a graphic on Cushing crude stockpiles surge, click here

Global storage onshore was estimated to be about 85{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} full as of last week, according to data from consultancy Kpler.

In a sign of the energy industry’s desperation for places to store petroleum, oil traders are resorting to hiring expensive U.S. vessels to store gasoline or ship fuel overseas, shipping sources said.