Crude oil futures rangebound despite economic rebounds, COVID-19 concerns linger

Singapore — 0359 GMT: Crude oil futures were rangebound during mid-morning Asian trade April 16, as bullish sentiment, bolstered by signs of increasing US and Chinese economic activity, was tempered by the dire coronavirus situation in key economies around the world.

At 11:59 am Singapore time (0359 GMT), the ICE Brent June contract was 4 cents/b (0.06%) higher than the April 15 settle at $66.98/b, while the May NYMEX light sweet crude contract was 2 cents/b (0.03%) lower at $63.44/b.

Propping up market sentiment are reports that the US economic recovery is well underway, as evidenced by a 9.8% improvement in March retail sales, the largest increase since May 2020, according to data from the Department of Commerce. Additionally, data by the Department of Labor showed that new applications for US unemployment benefits fell to a seasonally adjusted 576,000, the lowest since the pandemic caused mass unemployment in March 2020.

Providing further tailwind to the markets are reports of a strong Chinese GDP growth, which the National Bureau of Statistics quantified at 18.3% in the first quarter of 2021, the fastest year-on-year rate for any quarter on record. On a quarterly basis, the Chinese economy grew at a slower 0.6% in Q1, the data showed.

"The latest economic data out of the US and China point to a global economic recovery that is truly gathering pace and taking meaningful strides into the post-pandemic era, bolstering hopes for oil bulls to reclaim the $70 Brent handle," Han Tan, FXTM's analyst told S&P Global Platts April 16.

A rebound in economic activity in the US and China portends well for oil, as it is expected to be accompanied by an increase in oil and energy demand. Analysts have noted spillover effects of the economic advance on downstream products demand, specifically gasoline demand in the US.

"The reopening of the [US] economy has already seen traffic levels increase in various states across the nation. New York City toll traffic is set for its busiest April in seven years," ANZ analysts said in a April 16 note.

Tan, however, cautioned that it is crucial for investor sentiment that the economic reopening seen in the US and China does not show signs of letting up. "Global demand has to show itself robust enough to absorb the incoming OPEC+ supplies starting next month," he said.

Optimism due to the economic recovery narrative has also been dulled by a protracted battle with the coronavirus in key oil-consuming countries around the world. Italy, France and Germany, among other European states, remain under lockdown, while the situation in India has analysts particularly worried, as the country reported a record high 200,739 cases on April 14, according to John Hopkins University data.

The market, however, is hopeful of an improvement in the situation in Europe, as vaccination programs in the region are picking up pace.

"The news across Europe and Asia is not all positive, but seems mostly to be headed in the right direction," Edward Moya, senior market analyst at OANDA, said in a April 16 note.