The Big Chill Boosts Oil Prices, But Analyst Says $60 Is Enough Growth For Now

Meanwhile, insiders think OPEC will soon ease its output curbs: File Image/PixaBay

As predicted, severe winter weather in the U.S. south shutting down wells and refineries led to oil prices on Tuesday settling near 13 month highs.

After news that cold temperatures have caused the shutting of between 500,000 and 1.2 million barrels of crude production in the U.S., West Texas Intermediate settled up 1 percent to $60.05 after touching its highest since early January 2020; Brent settled up 5 cents, or 0.1 percent, to $63.35 per barrel, near the 13-month peak reached during the previous session.

Pundits noted that the loss of crude demand from disrupted refineries has pushed WTI futures' nearest time spread back into a contango structure for the first time in about a month, indicating oversupply.

Gary Cunningham, director at Tradition Energy, said, "There's a lot of reduced demand, creating pressure on nearer-term contracts," but the impacts likely "won't hit crude very hard at all."

Tuesday's session was also buoyed by sources from the Organization of the Petroleum Exporting Countries (OPEC) telling media that the remarkable recovery of crude prices will likely cause member producers to ease supply curbs–although any increase in output will be modest with respect to the fragility of global economic recovery during the Covid pandemic.

One source said, "If demand recovers as we expect, OPEC+ will ease the production adjustments gradually, always thinking about reducing the inventory overhang."

He added that the degree of easing depends on whether Saudi Arabia rolls back its voluntary cut of 1 million barrels per day (bpd), which is due to end next month, and whether there is room for an additional increase in supply from the whole group.

Meanwhile, Mark Matthews, managing director and head of Asia Research at Bank Julius Baer, told Bloomberg that crude prices are now at a level that make sense and that they could go higher still, "But I wouldn't really want to own it much above $60 and I think it will be at $55 in 12 months' time."

Still, Matthews joined the growing chorus of analysts bullish on 2021 economic recovery by adding that since it seems U.S. president Joe Biden will push through a Covid relief package of $1.9 trillion when the bank previously thought only $1 trillion would be passed, Julius Baer has revised its U.S. GDP growth upwards from 5.1 to 6.5 percent.

He said, "That's the fastest GDP growth the United States has had in 37 years; that's China-style growth."