Oil jumps to one-year high with depleting supplies aiding rally
Opec and its allies expect to drain an oil surplus by the middle of the year
Oil surged above $55 a barrel in New York to the highest level in a year, fueled by a virus-recovery rally underscored by declining global stockpiles.
West Texas Intermediate futures advanced as much as 3.2% on Tuesday, while the global Brent benchmark headed toward $60 a barrel. Crude has been climbing steadily since late last year as coronavirus vaccines and producers' supply curbs boost expectations of a tighter market. Opec and its allies expect to drain an oil surplus by the middle of the year.
There are pockets of physical-market strength, too. Royal Dutch Shell Plc raided the North Sea market Monday, buying the most benchmark-grade cargoes in a single day in 10 years in the S&P Global Platts pricing window. The oil major also bid for a further seven shipments in a flurry of activity.
"A lot of things have come together to enable this, not the least of which is the solid efforts of OPEC+," said John Kilduff, a partner at Again Capital LLC. "The wind is at the back of crude oil right now on several fronts: demand, constrained supply and monetary and fiscal policies."
The rally in headline crude prices and buying binge in physical markets comes amid a markedly tighter structure in the oil futures curve this year. Nearby Brent timespreads are trading in their biggest backwardation in a year - a bullish structure where nearer-dated contracts trade at a premium to later-dated ones - suggesting supply tightness.
Last month's pledge by Saudi Arabian Energy Minister Prince Abdulaziz bin Salman to slash production by a further 1 million barrels a day has buttressed global markets. On Wednesday, a panel that oversees OPEC's strategy - the Joint Ministerial Monitoring Committee - will convene online to assess the outlook. The JMMC is unlikely to recommend new policies, which will instead be tackled at the next full Opec+ meeting in early March.
The oil market is "supported by the combination of tightening fundamentals, as seen through the rising backwardation and the renewed risk appetite in the US stock market," said Ole Hansen, head of commodities research at Saxo Bank A/S.
In the US, analysts are expecting domestic crude inventories declined last week, according to a Bloomberg survey. The industry-funded American Petroleum Institute will report its figures later Tuesday ahead of the US government's storage tally on Wednesday.
Oil still faces bumpy short-term demand amid concern that new virus variants will lead to more lockdowns, while vaccine rollouts are slower than expected in some countries.
Meanwhile, retail investors using online chatrooms like Reddit will be hard pressed to influence other commodity markets beyond silver, Goldman Sachs Group Inc.'s Jeff Currie said in a Bloomberg Television interview.
"When you start to get to markets like oil and natural gas, the liquidity is substantially larger and it becomes that much more difficult to do," Currie said. "To be the marginal driver in these markets like they were in silver yesterday, is a much larger question mark."