Oil extended a rally from the highest level in more than a year on signs the global market is tightening and demand is improving.
Futures in New York climbed above $58 a barrel after surging 11% over the past six sessions as oil continued a robust recovery from the Covid-19 pandemic that eviscerated fuel demand. Trafigura Group sees prices moving even higher as refiners increase processing rates to meet rising product demand, while crude stockpiles in the U.S. are forecast to have dropped further last week.
Oil’s surge since the end of October has been underpinned by Covid-19 vaccine breakthroughs and a more recent pledge by Saudi Arabia to deepen production cuts. Prompt timespreads are firming in a bullish structure indicating shrinking supplies, and coronavirus infections are starting to slow across the globe.
“Fundamentally, we are seeing the pace of tightening picking up, with the additional Saudi cuts in effect,” said Warren Patterson, head of commodities strategy at ING Bank NV. “We are at levels where we should see quite a bit of producer hedging taking place, which should start to provide some resistance.”
Trafigura is “shifting significant volumes of crude oil at the moment,” Ben Luckock, co-head of oil trading, said on Friday in a series of bullish comments on the market outlook. However, Gunvor sees gains beyond $60 a barrel as unlikely because it would prompt energy companies to boost output.
U.S. crude stockpiles, meanwhile, fell by 250,000 barrels last week, according to the median estimate in a Bloomberg survey. If confirmed by official data on Wednesday, that would be a third straight weekly decline. However, gasoline inventories may see a build of 2.1 million barrels.
{{/usCountry}}U.S. crude stockpiles, meanwhile, fell by 250,000 barrels last week, according to the median estimate in a Bloomberg survey. If confirmed by official data on Wednesday, that would be a third straight weekly decline. However, gasoline inventories may see a build of 2.1 million barrels.
{{/usCountry}}Despite the rally gaining momentum recently, one technical indicator is signaling oil is overbought and due for a correction, and top traders Vitol SA and Gunvor Group Ltd. have expressed caution about the surge in prices.