Oil Tops $60 as Demand Recovers

(Bloomberg) -- Oil in London rose above $60 a barrel for the first time in more than a year as stockpiles tighten and the demand outlook improves amid the global rollout of Covid-19 vaccines.

It’s another milestone in a stellar comeback from the biggest demand destruction in a generation after the pandemic forced countries to lock down, devastated economies and grounded planes. The revival is a boost for global energy companies and petro-states whose budgets were ravaged last year.

Global stockpiles in onshore tanks and floating storage are estimated by the International Energy Agency to have shrunk by about 300 million barrels since OPEC and its allies made deep production cuts in May. Reduced supply and the vaccine-driven demand boost have entrenched Brent’s futures price curve in a bullish backwardation structure, which encourages the draining of more oil from tanks.

China has been a key driver of the market rebound. The number of tankers sailing toward the nation jumped to a six-month high on Friday. Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden said last week that fuel sales in the nation are back into “significant growth mode.” Meanwhile, Indian demand is almost back to year-ago levels as consumption of cooking fuels and gasoline surged on the back of forced lifestyle changes due to the virus.

“One could say that the state of the global oil market today is fully back to normal, at least spot price-wise,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “But of course we all know that is not quite so.”

The rally has been widespread across commodities and equity markets. But risks remain as a new virus variant spreads in the U.S., while other countries are still grappling with lockdowns. Top traders Vitol SA and Gunvor Group Ltd. have cautioned about the recent surge in prices and one technical indicator is showing that oil is overbought and due for a decline.

Prices

Brent for April rose as much as 1.6% to $60.27, the highest since Jan. 29, 2020, and was 1.1% higher at 10:16 a.m. in London West Texas Intermediate for March delivery gained 1% to $57.43

The market is “getting ahead of itself in terms of a post-vaccine euphoria,” Mike Muller, the head of Vitol’s Asian operations, said Sunday in an interview with Dubai-based consultant Gulf Intelligence. Gains beyond $60 a barrel are unlikely because that would prompt energy companies to ramp up production, Gunvor Chief Executive Officer Torbjorn Tornqvist said on Friday.

Other oil market news

Iran said it knew nothing about a cargo of oil that the U.S. is trying to seize and which Washington claims was exported covertly by the Islamic Republic. The head of Libya’s new presidency council is due soon in the capital to begin work on a transitional government amid cautious hopes a decade of fighting that’s divided the OPEC nation may be coming to an end.

--With assistance from Rob Verdonck.

© 2021 Bloomberg L.P.