Oil Resumes Upwards Trajectory As Inventories And Covid Rates Plummet

But Rystad Energy warns that the end of the Saudi output cuts will pose risk: File Image/PixaBay

After a curious deviation in the previous session from recent trading behaviour, crude resumed its strong upward trajectory on Friday-this time by over 2 percent–thanks again to tightening supplies and a combination of Covid vaccine dissemination and U.S. economic stimulus lending confidence to a demand recovery scenario.

Brent settled up $1.29, or 2.1 percent, at $62.43 per barrel, while West Texas Intermediate ended the session up $1.23, or 2.1 percent, at $59.47; the former benchmark rose 5.3 percent on the week, while the latter earned a weekly gain of about 4.7 percent.

The gains were mainly spurred by news that U.S. president Joe Biden will meet with a bipartisan group of mayors and governors as he keeps pushing for approval of a $1.9 trillion coronavirus relief plan to bolster economic growth.

Also, in the U.S. crude stockpiles have dropped to the lowest in nearly a year, and this caused Bill O'Grady, executive vice president at Confluence Investment Management, to observe, "This time of year, there's usually builds: the draws we've been getting are pretty surprising, setting up a really bullish backdrop."

However, it was said that a sharp drop in new Covid cases and hospitalizations in many countries buoyed crude traders as well as propelled all three major U.S. stock indexes towards a second straight weekly rise; in the U.K. alone, the vaccines will reportedly prevent 9 out of 10 deaths and cut hospitalizations by two thirds by the middle of March.

Jim Ritterbusch, president of Ritterbusch and Associates, remarked, "Expected U.S. stimulus and ongoing vaccine progress is likely to maintain appetite for risky assets in offering support to the oil market."

Capital Economics analysts added, "We anticipate that inventories will fall further later this year as transport fuel demand revives in tandem with the easing of virus-related restrictions on travel."

Of course, the current bullish market is not without risk: Louise Dickson, oil markets analyst at Rystad Energy, noted that "As jolly as the mood currently is, the extra [Saudi Arabia] cuts only last for another 50 days.

"The current bullish backwardation of the Brent curve indicates that the market has already priced in OPEC+ doing the right thing and staying disciplined with supply management–which is a risk."

For his part, John Kemp, commodities analyst at Reuters, said because of the delays between making a decision to raise output and extra barrels actually being available to consumers, the Organization of the Petroleum Exporting Countries "Must make a decision in the next six weeks to affect supply at the end of the second quarter and the start of the third, when the market is expected to become very tight."