Crude oil has grown steadily since late last year on coronavirus vaccine hopes and as production restrictions created a tighter market.
Oil rose to its highest level in over a year as tightening in global supplies and signs of strength in physical markets helped the crude virus recovery rally.
Futures rose 2.3% in New York, climbing above $ 55 a barrel for the first time in a year. Crude oil has risen steadily since the end of last year as coronavirus vaccines and manufacturer supply restrictions fuel expectations for a tighter market. OPEC and its allies expect to drain an oil surplus by the middle of the year.
Meanwhile, there are continuing signs of strength in the physical barrels of oil market. Royal Dutch Shell Plc is offering more loads of benchmark quality North Sea crude oil in a price window from S&G Global Platts. The deals come a day after the oil major made the heaviest purchases of any single company since at least 2008.
“There is hope related to the introduction of vaccines and we are seeing a lot from the majors and international players when it comes to reducing production,” said Gary Cunningham, director of Stamford, Tradition Energy in Connecticut. “These two factors combine to keep us at the high end of the range.”
The rally in crude oil prices and the buying frenzy in the physical markets are taking place this year amid a much tighter structure in the oil futures curve. Nearby Brent spreads are trading in their largest backwardation in a year – a bullish structure in which closer-dated contracts trade at a premium over later-dated contracts – indicating a supply shortage.
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman’s pledge last month to cut production by an additional 1 million barrels a day has propped up global markets. On Wednesday, a body overseeing OPEC’s strategy – the Joint Ministerial Monitoring Committee – will meet online to assess the outlook. The JMMC is unlikely to recommend new guidelines to be addressed instead at the next full OPEC + meeting in early March.
In the US, analysts expect domestic crude oil stocks to decline last week, according to a Bloomberg poll. The industry-funded American Petroleum Institute will release its numbers later Tuesday, ahead of the US government’s inventory census on Wednesday.
However, technical indicators suggest that prices are due for a decline, with both Brent and WTI above their upper Bollinger bands. At the same time, the short-term impact of the pandemic on demand limits how far the crude oil rally can extend. Even amid a spate of unplanned refinery outages that would normally boost gasoline prices on the U.S. Gulf Coast, they’re hardly causing any ripple as the pandemic continues to limit fuel demand.
Retail investors using online chat rooms like Reddit will find it difficult to influence commodities markets other than silver, said Jeff Currie of Goldman Sachs Group Inc. in an interview with Bloomberg Television.
“When you start entering markets like oil and natural gas, the liquidity is much greater and it becomes a lot harder to do,” said Currie. “Being the marginal driver in these markets as they were in silver yesterday is a much bigger question mark.”
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