A worker checks the valve of an oil pipe at the Lukoil-owned Imilorskoye oil field outside the Siberian city of Kogalym, Russia. File photo: REUTERS/SERGEI KARPUKHIN
A worker checks the valve of an oil pipe at the Lukoil-owned Imilorskoye oil field outside the Siberian city of Kogalym, Russia. File photo: REUTERS/SERGEI KARPUKHIN

Seoul — Oil prices were lifted on Thursday by an unexpected drop in US crude stocks, but gains were capped both by a bleak outlook for the world’s largest economy as the coronavirus pandemic crushes fuel demand and concern over a potential second wave of cases.

Brent crude futures were up US6c, or 0.2%, at $29.25 a barrel at 4.01am GMT. US West Texas Intermediate (WTI) crude futures were up US18c, or 0.7%, to $25.47 a barrel.

Prices have risen in the past two weeks as some countries relaxed coronavirus restrictions and lockdowns to allow factories and shops to reopen. But new cases have emerged in South Korea and China, raising concerns over a possible second wave of infections that would weigh on economic recovery and fuel demand.

US Federal Reserve chair 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 US 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.

US 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, Opec said on Wednesday it expects 2020 global oil demand to shrink by 9.07-million barrels per day (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 said.

Opec+, a grouping of Opec and other producers including Russia, agreed in April to curtail production by 9.7-million 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. 

Reuters