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Brent Oil Extends Advance Toward $60 on Tightening Glob...

Business Maverick

Business Maverick

Brent Oil Extends Advance Toward $60 on Tightening Global Supply

The Estrella, a crude oil tanker operated by Lundqvist Rederierna AB, left, and Nansen Spirit, a crude oil tanker operated by Teekay Corp., transfer oil between them off the coast of Southwold, U.K., on Friday, May 15, 2020. Nine tankers carrying about 5.58 million barrels of North Sea crude that loaded in April are floating off U.K. ports, according to ship-tracking data compiled by Bloomberg. Photographer: Chris Ratcliffe/Bloomberg
By Bloomberg
08 Feb 2021 0

Oil extended gains toward $60 a barrel as global supplies tighten and the demand outlook improves with the rollout of Covid-19 vaccines.

Futures in London added 1% after capping a third weekly gain. The number of vessels sailing toward China jumped to a six-month high on Friday, signaling robust demand from the world’s largest importer. Key prompt timespreads for the global benchmark Brent and U.S. crude have recently firmed in a bullish backwardation structure, indicating shrinking stockpiles.

See also: Oil’s Remarkable Rebound From a Year of Catastrophe

Top independent trader Vitol SA, however, joined with rival Gunvor Group Ltd. in expressing caution about the recent surge in prices, while a technical indicator is showing that oil is overbought and due for a correction.

Oil has surged amid vaccine breakthroughs and Saudi cuts

Oil has rallied since the end of October amid Covid-19 vaccine breakthroughs and after Saudi Arabia pledged to deepen output cuts. OPEC+ has vowed to quickly clear the surplus left behind by the pandemic, but there are still concerns about near-term demand, with a new virus variant spreading in the U.S. and other regions across the world grappling with lockdowns.

“The fundamental picture of demand improvement and discipline on the supply side suggests there is clear upside for the market,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific in Sydney. “OPEC+ discipline has been a key to the gains.”

Prices
  • Brent for April settlement gained 59 cents to $59.93 a barrel on the ICE Futures Europe exchange at 9:47 a.m. Singapore time after climbing 0.9% on Friday.
    • Front-month futures added 6.2% last week.
  • West Texas Intermediate for March delivery rose 1.1% to $57.45 on the New York Mercantile Exchange after adding 1.1% on Friday.

Brent’s prompt timespread was 27 cents in backwardation — where near-dated prices are more expensive than later-dated ones — compared with a 7-cent contango at the start of the year.

See also: Oil’s Recovery Is Too Fast for Its Own Good: Julian Lee

The market is “getting ahead of itself in terms of a post-vaccine euphoria,” Mike Muller, the head of Vitol’s Asian operations said Sunday in an interview with Dubai-based consultant Gulf Intelligence. Gains beyond $60 a barrel are unlikely because that would prompt energy companies to ramp up production, Gunvor Chief Executive Officer Torbjorn Tornqvist said on Friday.

Gallery

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