Oil Posts Weekly Gain On Saudi Output Commitment, As Analysts Debate Demand Recovery

Meanwhile, Citigroup boosts its price forecasts for 2021: File Image/PixaBay.

Saudi Arabia's pledge earlier in the week proved to resonate with crude traders, who cited it as the reason for oil prices on Friday rising to their highest level since late February.

Brent climbed 94 cents, or 1.8 percent, to $55.35 per barrel, while West Texas Intermediate gained 76 cents, or 1.5 percent, to $51.59; both benchmarks were on track for weekly gains of more than 6 percent.

Despite the worry from the analytical community that stockpiles are too high and demand is too low due to government-imposed lockdowns to combat the spread of Covid,  Phil Flynn, senior market analyst at Price Futures Group Inc., remarked, "People are realizing the market is tighter than it has been in a while and that the commitment by Saudi Arabia to cut back production is going to keep the market balanced despite the concerns about shut-ins from COVID."

Bloomberg noted that Brent's move above $55 "caps a stellar few months for the oil market, with crude emerging as a favoured play to bet on coronavirus vaccines and global reflation.... Saudi Arabia's pledge has led analysts to rethink their projections for crude's price recovery."

Indeed, Citigroup on Friday boosted its price forecasts, saying the kingdom's actions should accelerate stockpile draws.

Ryan Fitzmaurice, commodities strategist at Rabobank, said in a note, "We still expect commodity markets to attract more attention this year even beyond the rebalance as a weak U.S. dollar and increased fears of inflation bring the alternative asset class back in vogue."

Still, the overall mantra of analysts is that, despite the dissemination of vaccines and the pro-active stance of the Saudis, oil prices could suffer a correction in the coming months if demand remains constrained by the pandemic; analysts also worry that demand recovery could be slower in 2021 than originally thought.

However, presumably betting that market conditions in 2021 will be dramatically better than 2020, U.S. energy firms added oil and natural gas rigs for a seventh week: the rig count rose by nine to 360 in the week to January 8, its highest since May.

Meanwhile, one outcome of the Saudi commitment to lower output even more than current levels is that oil refiners in Asia are snapping up crude cargoes from Europe, case in point:  Unipec, the trading arm of China's biggest oil refiner Sinopec Group, bought four North Sea crude shipments in a pricing window organized by S&P Global Platts.