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Oil up a second day on bets for higher demand as U.S., Europe ease COVID restrictions

By Myra P. Saefong and William Watts

Oil futures post a gain for a second session on Tuesday, finding support as traders bet that easing COVID-19 restrictions in the U.S. and Europe will lead to higher fuel demand as the market approaches the summer travel season.

"From here on out the thing to watch will be air travel," said James Williams, energy economist at WTRG Economics. "Domestic and international air travel will continue to improve despite the difficulties in India," he said. Given the "lifting of so many restrictions in the U.S. and the pent up demand for vacations, we should see a strong uptick in U.S. gasoline consumption this summer."

West Texas Intermediate crude for June delivery rose $1.20, or 1.9%, to settle at $65.69 a barrel on the New York Mercantile Exchange. July Brent crude , the global benchmark, added $1.32, or almost 2%, at $68.88 a barrel on ICE Futures Europe. Both contracts settled at their highest since March, according to Dow Jones market Data.

Read:Saudi Aramco reports 30% jump in profit (link)

In the U.S., demand is surging, and combined with plans to ease U.K. restrictions on air travel, those developments are "offsetting concerns about demand destruction in India and the worries about the return of supply from Iran," said Phil Flynn, senior market analyst at The Price Futures Group.

The European Commission on Monday proposed welcoming fully COVID-19-vaccinated travelers and tourists from countries with "a good epidemiological situation." European airline shares jumped (link).

In the U.S., several states began lifting or announced plans to lift or ease lockdown restrictions (link). The average number of new cases in the U.S. fell below 50,000 a day for the first time since October (link). Nearly 1.67 million people were screened at U.S. airport checkpoints on Sunday, according to the Transportation Security Administration, the highest number since mid-March of last year.

"Europe's plans to curb travel restrictions is music to the ears of oil bulls. When added to Fed Chair Powell's comments that the U.S. economic recovery is making real progress, this is supportive of higher oil prices," said Sophie Griffiths, market analyst at Oanda, in a note.

The improving picture in the U.S. and Europe stands in contrast to India, the world's third-largest oil importer, where a deadly surge in COVID cases has yet to let up. Indian hospitals remain overwhelmed by cases and lacking in supplies including oxygen.

See: (link)India's COVID-19 crisis is a 'crime against humanity,' says prizewinning author as nation sets new case record (link)

Indian Prime Minister Narendra Modi, meanwhile, is "vowing to not shut down the Indian economy despite a lot of outside pressure to do so," Flynn said in a Tuesday note.

But WTRG's Williams thinks the market is "underestimating India's negative impact on demand."

Meanwhile, data from Bloomberg revealed that the Organization of the Petroleum Exporting Countries kept oil production mostly steady in April ahead of output increases that kicked in this month.

OPEC pumped an average of 25.27 million barrels a day in April, roughly 50,000 barrels a day less than in March, according to the Bloomberg survey (link).

Traders also looked ahead to a weekly update on U.S. petroleum supplies from the Energy Information Administration due out Wednesday.

On average, analysts polled by S&P Global Platts forecast a fall of 3.9 million barrels in crude supplies. That would follow back-to-back weekly increases.

The survey also showed expectations for inventory declines of 500,000 barrels for gasoline and 1.6 million barrels for distillates.

On Nymex Tuesday, June gasoline added 2.4% to $2.15 a gallon, the highest front-month contract finish since July 2018. June heating oil rose 2.4% to nearly $2 a gallon for the highest settlement since January 2020.

June natural gas barely settled higher, up 0.03% at $2.97 per million British thermal units.

-Myra P. Saefong; 415-439-6400;


(END) Dow Jones Newswires

05-04-21 1503ET

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