Picture: 123RF/PAVEL IGNATOV
Picture: 123RF/PAVEL IGNATOV

London — Oil climbed to the highest level since early March in London on Tuesday as indications of an economic recovery from the coronavirus pandemic helped drive a rally in commodities.

Both Brent and West Texas Intermediate crude futures jumped more than 2% on Tuesday. EU leaders agreed on an unprecedented stimulus package to pull their economies out of the worst recession in memory. At the same time, European regulators are eyeing a potential approval of the first Covid-19 vaccine in 2020, further adding to the positive sentiment.

On the supply side, analysts are expecting US inventories to tighten. Crude stockpiles probably fell for the third time in four weeks, a Bloomberg survey showed.

The “truly historic stimulus from the European Union governing body” is a “big positive for the oil market,” said John Kilduff, a partner at Again Capital. “That’s going to be very supportive of their economies and should translate into a better economic outlook and better fuel demand.”

Brent futures climbed toward $45 a barrel for the first time since early March when a meeting between Opec  and its allies broke down acrimoniously and the alliance began a short-lived price war. Since then, prices have recovered but remain range-bound as worldwide virus cases approach 15-million and various US states mull reimposing lockdown measures.

“The idea that things are going to continue to recover, demand is going to push back to pre-pandemic levels and there’s going to be enough supply off the market to keep tightening the picture, is where the buying is coming from,” said Gene McGillian, vice-president of market research at Tradition Energy.

But pandemic-driven demand concerns spurred by the virus are not yet in the rear-view mirror, challenging prices from posting a stronger breakout rally. Far more people were infected with the novel coronavirus than previously reported in several corners of the US, according to data released on Tuesday by the Centers for Disease Control and Prevention.

In the New York City metropolitan area, the CDC estimated based on samples collected in March and April that the number of people who contracted the virus could be at least 12 times the number of reported cases.

“We don’t have this virus under control in terms of number of cases and yet oil prices are still moving higher,” said Stewart Glickman, an energy equity analyst at CFRA Research. “One of two things happens, either the market is anticipating some kind of remedy that’s around the corner or folks are going to be disappointed and oil’s going to come back for a relapse.”

Meanwhile in the US, crude stockpiles probably declined by 2.2-million barrels last week, according to the median estimate in a Bloomberg survey. Domestic oil supplies are sitting at the highest seasonal level in decades. The survey also showed that fuel supplies probably dropped for a third straight week.

The government will release weekly inventory data on Wednesday.

Bloomberg