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May 5, 2020 4:15 PM, EDT

Oil Extends Recovery on Optimism Supply Cuts Will Trim Glut

An oil tanker is seen anchored in the Pacific Ocean above Long Beach, Calif., on May 1.An oil tanker is seen anchored in the Pacific Ocean above Long Beach, Calif., on May 1. (Patrick T. Fallon/Bloomberg News)

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Oil’s recovery from last month’s epic plunge accelerated as production cuts start to whittle down a supply glut and more economies ease their coronavirus lockdowns.

Futures rose for a fifth day, surging 20% in New York May 5, to close above $24 — its highest price in almost a month — while Brent topped $30 a barrel during the session for the first time since April 15.

As OPEC+ producers begin to cut output as part of an historic agreement, U.S. explorers are shutting in production in the country’s biggest shale fields. Diamondback Energy Inc., Parsley Energy Inc. and Centennial Resource Development Inc. on Monday became the latest Permian Basin producer to say they were dialing back.

Oil gained for a fifth consecutive day, the longest run in more than nine months.

“The primary issue is that there is less fear of a storage crisis, and there is also an anticipation that production is going to start to fall pretty quickly,” said Bill O’Grady, chief market strategist at Confluence Investment Management.

The American crude benchmark has more than doubled from an intraday low near $10 a barrel last week. The discount on crude for June delivery relative to July, a structure known as contango, tightened to its narrowest in more than a month, indicating that concerns about oversupply may be easing.

Morgan Stanley says the supply glut has probably hit its apex, though the market will likely remain oversupplied for several weeks. Inventories in China appeared to have peaked, according to satellite data, and the U.S., Russia and Brazil are showing signs of a rebound in driving.

There are also early signs that the plunge in fuel consumption caused by the spread of the coronavirus might have bottomed out in some markets, prompting U.S. President Donald Trump to tweet on May 5: “Oil prices moving up nicely as demand begins again!”

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