Oil prices buoyed by cautious easing of lockdowns

US oil prices rose for a fifth straight day and global stock markets pushed higher as the cautious reopening of economies sent a ripple of optimism across markets.

Countries including Spain, Italy and India have all slightly eased lockdown measures this week, allowing some businesses to reopen. In the US, California is set to tentatively relax restrictions from Friday.

The looser restrictions have allowed crude to extend its rally on hopes for a recovery in demand. West Texas Intermediate, the US marker, was up 10 per cent at $22.47 a barrel as trading began in Europe on Tuesday, leaving it up almost 80 per cent over the past week and putting it on track for its fifth consecutive daily rise. Brent crude, the international benchmark, was up 7.1 per cent at $29.13.

“The reopening of economies has injected a degree of cautious optimism back into an oil market that plunged to historic lows only weeks ago,” said Michael Tran, commodity strategist at RBC Capital Markets.

Oil prices have been under heavy pressure in recent weeks from a collapse in demand due to the coronavirus pandemic, with WTI at one point slumping into negative territory as producers paid buyers to take products they could not store.

Robert Rennie, global head of market strategy at Westpac, said US oil prices were getting a boost from a report by energy information group Genscape that reserves at the key oil storage centre of Cushing, Oklahoma, had risen only 1.8m barrels last week.

If confirmed by data from the American Petroleum Institute, due out later on Tuesday, this would mark the smallest increase since mid-March.

But with demand remaining down by as much as a third and storage capacity continuing to fill, albeit at a slower rate, there remains a possibility that oil prices may yet relapse.

“Many market participants believe there is light at the end of the tunnel,” said Giovanni Staunovo, an analyst at Swiss bank UBS. “But while the inflection point appears near, we would describe the current environment as the darkest hour just before the dawn. With oil inventories still increasing, crude oil prices remain vulnerable to renewed setbacks.”

The rise for US crude came despite a decision by the Texas Railroad Commission, the state’s oil and gas regulator, to drop an effort to force producers to cut output after running into opposition from energy companies.

The optimism over economies reopening also spilled into equities, with European stocks shifting higher as trading began. The Stoxx Europe 600 added 1.2 per cent shortly after the open, while London’s FTSE 100 and Frankfurt’s Dax each gained 1.6 per cent. In Paris, the CAC 40 was up 1.7 per cent.

Asian equities made modest gains, with markets in Japan, China and South Korea closed for public holidays.

Hong Kong’s benchmark Hang Seng index was up 1 per cent while Australia’s S&P/ASX 200 rose 1.6 per cent.

Futures markets pointed to a rise of 0.8 per cent for the S&P 500 when trading begins on Wall Street later in the day, following a late-session comeback to notch a slight gain on Monday despite concerns over a resurgence in US-China tensions.

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