More Gains For Oil As Optimism Over 2021 Demand Recovery Gains Traction

Also, analysts point to investment opportunities in Brazil, Norway: File Image/PixaBay

Oil prices enjoyed another healthy increase on Tuesday, buoyed by the perception that the U.S. Congress seemed poised to adopt the long-awaited $1.9 trillion economic stimulus package, and by the notion that the Organization of the Petroleum Exporting Countries (OPEC) is living up to its output cut commitments.

After it was learned that OPEC output rose in January for a seventh month but the increase was smaller than expected, Brent settled up $1.11, or 2 percent, at $57.46 per barrel; West Texas Intermediate gained $1.21, or 2.3 percent, to close at $54.76.

Also supporting the benchmarks was the American Petroleum Institute reporting that U.S. distillate fuel stockpiles, including heating oil, fell in the latest week, along with gasoline and crude stockpiles.

Meanwhile, Baker Hughes joined the growing list of experts predicting 2021 to be a demand recovery year: Lorenzo Simonelli, chief executive for the company, said that while some countries are still in lockdown against Covid, "We are cautiously optimistic" about a demand recovery in the energy sector in the second half, due to the vaccine rollout (in which just over 100 million people have been inoculated globally, as of Tuesday).

Simonelli added that "pockets of opportunity" for investment will occur, including in the Middle East, Brazil, and Norway, but that U.S. shale producers are likely to be "subdued" due to capital discipline.

Baker Hughes' optimism was matched by OPEC's latest monthly report, which expects global oil demand to increase by 5.9 million barrels per day (bpd) to an average of 95.9 million bpd, thanks to the vaccinations providing "upside optimism."

Also looking on the bright side was Goldman Sachs, which predicted an oil market deficit of 900,000 bpd in the first half of 2021, compared to its previous prediction of 500,000 bpd.

As for the current physical side of oil, there continues to be signs of market strength with Royal Dutch Shell bidding for more cargoes of benchmark-grade North Sea crude on an S&G Global Platts pricing window; this is on the heels of Shell staging the heaviest buying by a single company since at least 2008.