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Suncor Energy Edmonton Refinery in Edmonton, on March 30, 2020.Amber Bracken/The Globe and Mail

The world is creaking back to life, and oil markets are on a tear.

Watch out, there’s still a pandemic on.

Signs of recovery are popping up all over the place, leading traders to wager that the factors that forced the global energy industry into unprecedented retraction – all those business closings and sheltering in place – look to be dissipating.

Factories and stores are reopening and traffic is picking up on the roads in Milan, Atlanta, Saskatoon and lots of other places. But after five days of gains that have seen oil prices double, the risk is that markets are getting ahead of themselves.

Demand is well under pre-COVID-19 levels and the need to store crude and petroleum products wherever possible remains a priority, especially in Canada and the United States. If measures to open up economies prove premature, and infections flare up anew, this stage of recovery will be pre-empted. India and Russia are among countries that have already reported new waves of coronavirus cases as global restrictions ease.

For oil markets, April 20 is fading in the rear-view mirror. That was the fateful day that front-month U.S. crude futures tumbled to nearly US$38 a barrel below zero. Holders of those contracts were stuck having to pay to get rid of them, lest they be forced to take delivery of the crude in a market so disrupted they could not get it to the few storage tanks that had room to spare.

Refineries were dialled down to minimal processing rates because fuel consumption had dwindled. North American shale oil producers and oil sands companies responded with deep cuts in output – following 9.7 million barrels a day of mandated cuts by Saudi Arabia, Russia and their allies. Those kicked in late last week.

On Tuesday, West Texas Intermediate crude jumped 20 per cent to US$24.56 a barrel, still below many producers’ ability to operate profitably but still, the highest since April 8. With as much as a million barrels a day of Alberta crude production offline, the price discount for Western Canada Select heavy blend has narrowed to a razor-thin US$4.50 a barrel, according to NE2 Group.

Here is one plank helping to provide a floor under oil – and it’s one we used to curse: traffic. Royal Bank of Canada has tracked traffic congestion in U.S. cities, and had reported it plummeted to 83 per cent below normal in mid-April. Now, RBC pegs the reduction at 74 per cent under normal traffic patterns, which is good for an additional 795,000 barrels a day of gasoline demand.

That jives with commentary on Tuesday by executives at U.S. refiner and retailer Marathon Petroleum Corp. The company – which reported a first-quarter net loss of US$9.2-billion – said gasoline demand bottomed out in the week of April 6. It was down by more than half.

In the past three weeks, it has clawed back up to 15 per cent. Marathon chief executive Michael Hennigan said signs of recovery are there, but cautioned about the oceans of inventory that must be worked off before markets return to some normalcy. This is key for Canada, as Marathon is a big buyer of Canadian crude in the U.S. Midwest.

The CEOs of Calgary-based Husky Energy Inc. and Cenovus Energy Inc. expressed similar market views on recovery last week after reporting billion-dollar-plus quarterly losses.

The red ink has not let up. Suncor Energy Inc. reported a net loss of $3.5-billion late on Tuesday, hurt by the oil-price crash and non-cash charges related to asset impairments and a foreign exchange loss. Canada’s largest oil company said it has cut spending for a second time, reducing expenditures by $400-million on top of $1.5-billion announced in March. It also slashed its quarterly dividend by more than half.

Suncor has already cut oil sands output by a third at its Fort Hills project in Alberta. Expect Mr. Little to field questions during Suncor’s quarterly conference call Wednesday on whether he sees the need for more cuts to deal with the drop in consumption and full storage.

It’s unlikely that the recent price gains will be sustained indefinitely, even as governments seek to kick-start economies that suffered their worst skids since the 1930s. With public-health concerns and high petroleum inventories clouding the picture, the roller-coaster ride in markets is not over.

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