Oil Prices Achieve Strong Monthly Gains As Demand Recovery Sentiment Intensifies

However, India's rising Covid rates could seriously impact the recovery: File Image/Pixabay

Weak crude import data from Japan, combined with on-going worries about demand in India due to rising Covid rates, caused traders on Friday to reverse the oil gains of the previous session–although two key benchmarks still enjoyed healthy monthly increases.

After government figures revealed that Japan crude imports fell 25 percent in March from a year earlier to 2.34 million barrels per day (bpd), Brent settled at $67.25 per barrel, falling $1.31; West Texas Intermediate settled at $63.58 per barrel, down $1.43.

However, the benchmarks gained 8 percent and 6 percent respectively for the month.

Ironically, fickle traders ignored the good news from Japan on Friday: that its factory activity expanded at the fastest pace since early 2018.

With many European countries and the U.S. banning travel to India–where hospitals and morgues are said to be overwhelmed by Covid casualties–worries over demand impact predominated: Phil Flynn, senior market analyst at Price Futures Group Inc., remarked, "It was the end of the month so there was some profit-taking, but I think the biggest issues were the reports coming out of India concerning Covid.

"That uncertainty has put the market on edge."

Still the strong data from other parts of the world showing demand recovery, which boosted crude prices earlier this week, remain intact, and on Friday that data was supported by a Reuters poll of 49 experts, who concluded that Brent would average $64.17 in 2021, up from last month's consensus of $63.12 per barrel and the highest outlook for the period since January last year.

Giovanni Staunovo, analyst for UBS, said, "With vaccine rollouts gaining pace this year, we anticipate people will likely go out again and businesses will fully reopen over the coming quarters — indeed, this is already happening in the U.S. and the UK."

He added that this should push Brent to about $75 in the second half.

More support for those worried about global supply and balance was provided on Friday by the Energy Information Administration, which reported that U.S. oil production dropped 1.197 million bpd in February to 9.862 million bpd, the lowest levels since October of 2017.

Edward Moya, senior market analyst at Oanda Corp., said, "The U.S. is going to lead the demand recovery" and "now that Covid cases are declining across most of western Europe, there's excitement around a strong pickup in global economic activity and improved air travel in the coming months."

Still, all eyes remain on India, whose imports Kpler stated on Friday could fall by over 1 million bpd in the coming weeks, if not three times more, unless the infections are brought under control.