Oil is finally pricing in the full boost from the long-awaited U.S. stimulus bill, rising on the prospect of extra spending and its related market benefits.
That’s what Rystad Energy Oil Markets Analyst Louise Dickson said in a statement sent to Rigzone on Monday. Dickson noted that the market had already been trading on the expectation that the stimulus package would come but added that delays and political hiccups had made its timing and contents uncertain, so having more clarity “is welcome”.
“The fact that the U.S. House finally passed the bill is a crucial step and now markets finally rejoice on solid ground,” Dickson said in the statement.
“Oil prices are naturally moving as spending is expected to rise in industrial and social activity, naturally creating more demand for oil,” Dickson added.
Although the $1.9 million U.S. stimulus package still needs to move onto the Senate, it is poised to pass, Dickson outlined. The Rystad Energy representative also said that recovering equities markets are helping the oil market and that the approval of Johnson & Johnson’s single shot Covid-19 vaccine was adding an extra weapon in the fight against the pandemic and “putting the cherry on the bullish trader’s cake”.
Dickson warned however that, even though the oil market is enjoying some of its happiest days since the pandemic hit it, there are bearish clouds on the horizon.
“A higher oil price environment, an increasingly promising demand picture by summer, and the recovering but still growing U.S. oil production outlook for 2021 should give OPEC+ the confidence to slightly increase supply, though we expect the increase to be limited and in line with the current policy to not bring back more than 500,000 barrels per day on a monthly basis,” Dickson said.
“Higher prices will give the supply hawks of the group, led by Russia, more justification in calling for more supply sooner. In a higher oil price environment, Russia will also have more sympathetic ears towards its call for increasing supply, which will jilt the group dynamics away from the cautious approach led by Saudi Arabia, the main bullish environment creator,” Dickson added.
The Rystad Energy representative also warned that the Saudi Arabian additional million-barrel cuts that are supporting prices for February and March are “all but unsure” to be kept after March and noted that the refinery maintenance season is starting for many facilities, “meaning some demand is expected to be taken off, not exactly helping oil prices”.
To contact the author, email andreas.exarheas@rigzone.com
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