Oil Extends Its Winning Streak As Analysts Anticipate A Covid-Free World In 2021

Meanwhile, OPEC will likely not abandon its output cuts, says Iraq: File Image/PixaBay

The gains may be gradually diminishing, but oil prices rose on Wednesday for a ninth straight day, the longest winning streak in two years, on the strength of an unexpected drop in U.S. inventories and growing consensus that the Covid vaccines will bring the world back to normal sooner than later.

After the Energy Information Administration on Wednesday reported a 6.6 million barrel drop compared to expectations of a 985,000 barrel increase, Brent rose 30 cents to $61.39 and West Texas Intermediate gained 22 cents to $58.57.

The analytical stance in the crude market is now decisively shifting away from fear of demand destruction, which dominated most of 2020, to the concern that supply might in fact be constrained in 2021 as more people get vaccinated and start working in offices and going on vacation.

For the record, it has been estimated that one in 10 Americans have now been vaccinated; states such as Iowa have done away with mask mandates and business curbs, and New York state is reopening stadiums.

However, Bjornar Tonhaugen of Rystad Energy cautioned that "The current price levels are healthier than the actual market and entirely reliant on supply cuts, as demand still needs to recover."

Still, with Brent breaching the $60 threshold, the market's forward curve has moved sharply into a pricing pattern where nearer-dated contracts are more expensive than later ones–which means WTI is yielding about 8 percent on an annualized basis for investors who roll their positions from one month into the next (by comparison, a 10-year U.S. Treasury yields 1.15 percent, and U.S. junk bonds are below 4 percent).

Indeed, Goldman Sachs recently noted that it expects commodities as a whole to return 10 percent over the next 12 months.

In other positive energy-related news on Wednesday, Ihsan Abdul Jabbar, energy minister for Iraq, said the Organization of the Petroleum Exporting Countries (OPEC) and its allies likely will not change its production policy at next month's meeting, and he repeated promises to deliver overdue output cuts.

He said, "I think in March the agreement will be that output will remain on the same level."