Oil Hits Highest Level In A Year On Economic Recovery Signs

But one experts warns that oil at $60 will prompt more production output: File Image/Pixabay

With economic recovery hopes, the labour market in the U.S. stabilizing, and signs globally that the Covid vaccines are significantly lowering hospitalization and infection rates, oil prices on Friday hit their highest level in a year.

Brent rose 50 cents to $59.34 after hitting its highest since Feb. 20 at $59.79; West Texas Intermediate was up 56 cents at $56.79, after reaching $57.29, its highest since Jan. 22 last year.

For the week, U.S. crude was on track for a gain of nearly 9 percent, the biggest percentage gain since October, and Brent was on track for 6 percent gain.

In referring to the Organization of the Petroleum Exporting Countries' initiatives to keep a lid on output levels, Edward Moya, senior market analyst at OANDA, said, "Brent is eyeing the $60 level now that OPEC+ has successfully eased most supply side concerns and optimism on the Covid front improves globally."

Indeed, Covid infections throughout the U.S. due to the vaccines have dropped 16 percent in the past week; about 1 in 5 people in the U.K. have been vaccinated; and drug makers are confident they will have the next generation of vaccines to cope with any Covid variants by autumn.

Vikas Dwivedi, a global energy strategist for Macquarie Group, said, "There's going to be bumps in the road, but we know the final outcome now, which is that we're heading back toward a lot more normal.

"Demand bottomed, supply has remained in check and the macro factors like equity markets, inflation potential and the U.S. dollar are tailwinds directionally for more capital coming into oil."

But some experts think oil's remarkable gains for the week may be short lived: Torbjorn Tornqvist, chairman and chief executive officer at Guvnor Group Ltd., said in an email Friday that "Once you hit $60 a barrel, any oil production out there is profitable, and the incentive for oil producers to hold back erodes real fast."

He added, "The high-$50s are the higher end of our expectation for the first half, and we're not sure we will see much higher."

As for demand geographically, Tornqvist said it  "all comes down to China....Europe is clearly the worst hit, [and] the U.S. is more stable, with only a couple million barrels loss in demand."

With regards to China, Bloomberg speculated that the country is piling back into the crude market again, with the number the vessels sailing toward the shores of world's largest importer jumping to a six-month high of 127 on Friday; f Fully laden, they would deliver in excess of 250 million barrels.

Bloomberg stated a Chinese buying spree would be appropriate given that inventories in most parts of the globe are now falling.