Strong concentration in oil markets has pushed crude prices to their highest levels since near the onset of the coronavirus pandemic, driven by production curves and regaining demand.
Brent-crude futures, the benchmark in energy markets, have risen more than 50% since late October and are approaching $ 60 a barrel for the first time since Covid-19 began eroding oil demand in early 2020. Futures for the West Texas intermediate – due to WTI, the U.S. primary crude – have surpassed $ 55 a barrel for the first time in more than a year.
The pace of recovery has surprised some investors and analysts, as coronavirus continues to reduce demand. It has acquired shares in companies, including Exxon Mobil Corp..
and ConocoPhillips post-2020 turbulent for oil and gas producers, making energy stock the best performers on the S&P 500 this year.
“There is definitely market movement,” said John Kilduff, a partner at Again Capital LLC, a hedge fund that invests in energy products. “WTI is going to target $ 60 as well.”
Oil is rising against a mixed economic backdrop, with data released Friday showing the labor market has a long way to go. But the stock market continues to power higher, partly because investors expect a new dose of fiscal stimulus and vaccine growth.
Behind oil accumulation: Large stocks accumulated in the early stages of the pandemic have declined faster than many expected. Traders say that could pave the way for additional price gains if demand, which has already recovered in China and India, picks up in developed economies.
The fall in investments is largely due to efforts by the Organization of Petroleum Exporting Countries and its allies, led by Russia, to halt production. Since agreeing to the cuts at the height of the crisis in energy markets in April, producers have held back 2.1 billion barrels of oil, OPEC said last week.
U.S. companies have also helped prevent production from swamping demand. Global demand for oil remains below pre-pandemic levels despite a rise in consumption of gasoline, naphtha and fuel oil, which is used to heat homes and power vessels.
American producers are pumping 17% less crude than they did on the eve of the pandemic, according to the Energy Information Administration.
All of this has dragged the amount of crude oil and petroleum products stored worldwide by about 5% from the peak in 2020, according to Morgan Stanley analyst Martijn Rats.
There is no oil shortage, but one sign that market tensions are coming from the link between current and future prices. Spot prices have skyrocketed above prices for crude to be delivered down the line, indicating that traders are willing to pay more for immediate access to oil.
On Friday, WTI contracts for oil delivered next month cost $ 5.16 more per barrel than contracts for crude hands that change in March 2022. That’s the highest price for futures in the month since the outbreak began and compared to its historically significant decline in April last year, when a lump of oil pushed WTI prices below zero.
“It’s a bullish signal,” said Scott Shelton, energy analyst and broker at United ICAP. “I don’t think there is any question about that. ”
Analysts say this dynamism – known as backlash – has been contributing to the slowdown in energy contracts with airlines and other purchasers to derail fuel prices. .
However, some investors say the situation shows that the rally has more to run. It will encourage traders to take oil out of storage, as they earn more from selling it immediately. That would support prices by putting down products. Lower forward prices are also making it harder for producers to lock in profits for barrels they sell in the future, encouraging them to keep oil in the ground.
A back-up could encourage more money managers to bet on crude, said Mark Hume, co-manager of BlackRock’s BGF World Energy fund. When barrels of oil find a prime price, money earns a profit when futures come and move on to cheaper contracts with a later date.
The opportunity to capture this additional yield has attracted investors ’money into commodity markets in recent months, adding to the bullishness that exists about raw materials, according to Ruhani Aggarwal , an analyst at JPMorgan Chase & Co.
However, some analysts believe that investors are overly optimistic, saying that a hurdle in the oil market includes potential for an increase in exports from Iran. In addition, new coronavirus modifications could lead to further restrictions on movement.
“Just when we are ready to say we are over with the virus, the virus is not over with us,” said Helima Croft, head of global product strategy at RBC Capital Markets.
Write to Joe Wallace at [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8