Oil rally extends on improved China demand, tightened US supply outlooks

New York — The oil complex again settled higher Friday as the market eyed stepped-up Chinese crude demand and tightened US supply outlooks.

NYMEX June WTI settled up $1.87 at $29.43/b and ICE July Brent was $1.37 higher on the say at $32.50/b. Front-month WTI notched a fresh two-month high, while Brent settled at the highest since April 8.

Crude oil throughput at China's domestic refineries edged up 0.8% year on year to 13.16 million b/d or 53.85 million mt in April, posting the first uptick since the coronavirus outbreak, the country's National Bureau of Statistics data released overnight showed.

"China remains the template for the economic recovery for the rest of the world and last night's data gave energy traders some hope that demand will begin to recover over the coming weeks," OANDA senior market analysts Edward Moya said.

NYMEX June ULSD settled up 2.56 cents at 92.04 cents/gal and June RBOB climbed 5.57 cents on the day to settle at 97.02 cents/gal.

Chinese crude throughput is expected to continue its upward momentum in May, as companies make room for excess crude purchased at low prices in March, analysts told S&P Global Platts Friday.

According to Klper, a trade flow tracker, China's seaborne crude imports is expected to reach 344 million barrels (11.1 million b/d) in May, up 37.6% from April.

Improved forward demand outlooks have contributed to a flattening of WTI forward curves in recent weeks. The contango in front-to-second month futures contracts narrowed to 9 cents/b, the weakest since January 30. The July contract briefly traded at a discount to front month intraday.

Year-ahead WTI futures settled at a $4.29/b premium to front-month, the weakest one-year contango since March 6.

Oil prices were further bolstered by increasingly bullish US supply outlooks.

On Friday, US investment bank Goldman Sachs, citing further decreases in capital expenditure budgets, revised its forecast for US production declines to 1.8 million b/d by second quarter 2021, up from previous estimates of 1.7 million b/d.

As of Monday, 37 US operators have lowered 2020 capex guidance by an average 36%, amounting to approximately $41 billion in reduced investment, according to S&P Global Platts Analytics.

The closely watched Baker Hughes oil rig count fell 34 to 258 this week, marking a ninth consecutive weekly decline.

The put to call ratio for open interest for June NYMEX WTI options was around 0.74 Friday, suggesting bullish sentiment significantly outweighed bearish sentiment on the last trading day before the options expired.

Implied volatility, a measure of downside risk in the market, for the second-month July WTI contract fell to 70.4% Friday, according to data from MarketView, a fresh two month low.