Oil Prices Hit Two Year Highs On Demand Strength In North America, Europe

Also, hedge funds in petroleum have reached pre-pandemic levels: File Image/Pixabay

Oil prices on Monday hit their highest level in over two years thanks to the familiar supports of demand recovery due to the efficacy of the Covid vaccines worldwide.

Brent rose 34 cents to $73.03 per barrel by 12:56 p.m. EDT (1656 GMT) after hitting $73.64, its highest since April 2019; West Texas Intermediate rose 27 cents to $71.18 per barrel, after a high of $71.78, its highest since October 2018.

Once again, automobile traffic returning to pre-pandemic levels in North America and much of Europe was cited as the reason for Monday's gains, coupled with an increase in air traffic as the government-mandated Covid restrictions are withdrawn.

Trader optimism was also said to have been buoyed by the G7 summit, in which participants cooperated on key topics such as the ongoing recovery from the pandemic and 1 billion vaccine doses being donated to poor nations.

John Kemp, commodities analyst for Reuters, noted that hedge funds boosted their position in petroleum last week to pre-pandemic levels of 919 million barrels, "the highest since January 2020 before the pandemic took hold; prior to that, it was the highest since the peak reached in October 2018 before the trade war between the United States and China intensified."

Most significantly, across all six contracts bullish long positions outnumbered bearish short ones by a ratio of almost 6:1, which "indicates high confidence that prices will rise even further," according to Kemp.

Kemp warned that "crude prices are now well into the upper half of the distribution for recent decades, signalling the urgent need for more output to stabilize global inventories and prevent the market overheating."

But the situation isn't universally rosy: Saudi Arabia reported on Monday that its gross domestic product fell 3 percent in the first quarter, slightly less than official estimates and compared with a 1 percent contraction last year, as a sharp fall in the oil sector affected the economy.