Demand for gasoline is on the mend around the world, supporting crude
Oil prices are staging a furious comeback from last month’s collapse, lifted by record supply cuts and a pickup in global fuel demand that many investors hope heralds a swift economic recovery.
With prices still below levels at which most producers can make money, companies from Exxon Mobil XOM -1.26% Corp. to EOG Resources Inc. EOG -0.54% are curtailing output and shutting off productive wells. Those supply cuts come with rising factory activity in China boosting fuel consumption while economic growth in what is the world’s largest consumer of raw materials returns to normal. Demand for gasoline is also on the mend there and in parts of the U.S. and Europe, with drivers returning to roads.
As more lockdown measures imposed to halt the spread of the coronavirus pandemic are eased around the world, some investors predict a long-term increase in oil prices. The turnaround is a boon to the beaten-down energy industry and underscores investors’ hopes for a global economic recovery. Oil tends to rally when more people are traveling, factories are operating and ships laden with goods are moving around the world, trends that also often boost stock prices.
The S&P 500 rose Monday to a two-month high, led by a 7.6% rebound in energy stocks, which mirrored gains in crude prices. Stocks inched lower early Tuesday but oil prices kept rallying.
“As we see transportation demand recover and the globe reopening, that will help the oil price gradually grind higher,” said Rob Thummel, a senior portfolio manager who manages energy assets at the investment firm Tortoise. “We’ve still got a long way to go.”