The market outlook has already been tightening. Saudi Arabia trimmed February supplies to at least 11 refiners in Asia and Europe after announcing surprise production curbs last week. U.S. inventories are also expected to decline in government data later, after the American Petroleum Institute reported crude stocks dropped by 5.82 million barrels last week.
Covid-19 vaccine breakthroughs and the recent Saudi pledge to deepen cuts have underpinned a meteoric rise for oil since the end of October, with prices up almost 50%. There are still concerns about global fuel demand as the virus continues to spread in some regions. Japan expanded its state of emergency and an outbreak in China appears to be worsening.
“We have a positive outlook,” Russell Hardy, chief executive officer of Vitol Group, the world’s largest independent oil trader, said in a Bloomberg Television interview. “The market as usual is racing ahead and factoring in that positive news of a vaccine and the expectation of a better summer and a better second half of 2021.”
The rally is testing the technical limits of both the U.S. benchmark and Brent crude in London. Prices have surged into overbought territory, signaling a correction might be due.
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Brent’s prompt timespread was 9 cents a barrel in backwardation — a bullish structure where near-dated prices are more expensive than later-dated ones — compared with a 7-cent contango at the start of last week.
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