Oil Ekes Out Gains Under Covid Cloud And Biden Optimism

Meanwhile, OPEC contributes to the perception of tightening supply: File Image/Pixabay

Traders on Monday swung back towards cautious optimism with regards to the impending U.S. economic stimulus package and supply concerns, causing oil prices to rise about 1 percent - however, the perpetual worry over government-mandated lockdowns to combat rising Covid infections limited the gains.

After it was suggested that U.S. president Joe Biden was working with Republicans to ward off criticism that his $1.9 trillion pandemic relief package was too expensive, Brent on Monday rose 47 cents, 0.9 percent, to settle at $55.88 per barrel; West Texas Intermediate crude ended 50 cents, or 1 percent, higher at $52.77 per barrel.

Oil was also supported by Petro-Logistics stating that the Organization of the Petroleum Exporting Countries (OPEC) and its allies' compliance with crude output curbs is averaging 85 percent so far this month compared to 75 percent in December.

The company stated, "The biggest reductions in January supply are expected from Libya, Iraq, and Nigeria."

Bjornar Tonhaugen, head of oil markets at Rystad Energy, said of the former issue, "President Biden seems to be pushing for a quick approval of his....relief package, a development interpreted by the market as a clear indication that the new U.S. administration aims to kick-start an economic recovery, which will naturally benefit fuel consumption."

But as far as John Kemp, commodities analyst at Reuters, is concerned, oil buying by hedge funds is fading: on Monday he stated that fund positions "appear stretched on the long side, though not yet excessively so, implying there is still room for position building, but risks are now concentrated on the downside."

RBC took a more middle-ground approach to assessing the overall oil market, noting the good along with the bad in a report released Monday: it stated, "The physical market appears to be absorbing any material demand softness from lockdowns in stride, for now.

"However, the physical market is far from tight and additional barrels are not being bid in size, even as the Saudi cut propagates to the consumer base for next month."