Oil holds gain near $53 as tightening supply offsets virus woes

Oil has surged almost 50% since the end of October but the rally has started to falter amid concerns about a sustained recovery in global fuel demand.

Oil held gains near $53 a barrel as more signs of tightening supply offset concerns that a resurgent Covid-19 outbreak in some regions and a slow roll-out of vaccinations will blunt near-term demand.

The LNG Croatia FSRU liquid natural gas (LNG) storage vessel and import facility at the LNG terminal, operated by LNG Croatia LLC, in Krk, Croatia, on Monday, Jan. 25, 2021. The market for vessels carrying liquefied natural gas boomed last year as the world�s biggest trading houses and oil majors booked up ships to take advantage of the�winter demand boom�in fuel demand. Photographer: Petar Santini/Bloomberg (Bloomberg)

Futures in New York were steady after rising 1% on Monday. Russian seaborne exports of its flagship Urals crude will drop by almost 20% in February from a month earlier, adding to lower Iraqi output and crimped Libyan shipments. Key prompt timespreads for the US benchmark and global Brent are in a bullish market structure and widening, indicating shrinking supplies.

The market, however, still faces headwinds from the virus. A flare-up in China is threatening fuel demand during the Lunar New Year period, with the government encouraging millions not to travel to prevent further spread.

Oil has surged almost 50% since the end of October but the rally has started to falter amid concerns about a sustained recovery in global fuel demand. Vaccine coverage won’t reach a point where it will stop the transmission of the virus in the foreseeable future, the World Health Organization said on Monday.

Brent’s prompt timespread was 20 cents a barrel in backwardation on Monday -- where near-dated contracts are more expensive than later-date ones -- compared with a 7-cent contango at the start of the month.