Inject new oil Momentum price rally tightening oil supply

The rapid boom in oil markets has pushed crude oil prices to their highest level since the onset of the coronovirus epidemic, driven by production restrictions and demand recovery.

Brent-crude futures, the benchmark in the energy markets, have risen more than 50% since the end of October and are coming off $ 60 a barrel for the first time since Kovid-19 to eliminate oil demand in early 2020 Began for According to Voice for West Texas Intermediate – ORTI, the main grade of US crude – surpassed $ 55 a barrel for the first time in a year last week.

The pace of recovery has surprised some investors and analysts, given that coronovirus demand continues to decline. It includes shares of several companies including Exxon Mobil Corp.

And ConocoPhillips make the best-performing energy stocks on the S&P 500 this year, after a troubled 2020 for oil and gas producers.

“The market definitely has some momentum,” said John Kilduff, again a partner in Capital LLC, a hedge fund that invests in energy derivatives. “WTI is also going to target $ 60.”

Oil is rising against a mixed economic backdrop, with data published on Friday showing a long path to recovery in the labor market. But high strength in the stock market continues, as investors expect new doses of fiscal stimulus and vaccines for growth.

Behind the oil rally: the huge reserves accumulated in the early stages of the epidemic, have fallen down faster than many expected. Traders say that if there is already a recovery in China and India, it is expected to grow in developed value economies.

The decline in inventories is largely due to the efforts of the Organization of Petroleum Exporting Countries and its partners, led by Russia, to halt production. OPEC said that after agreeing to cut the peak of the crisis in energy markets in April, producers have withdrawn 2.1 billion barrels of oil.

US companies have also helped stop production by reducing demand. Global hunger for oil remains below pre-epidemic levels despite increased consumption of gasoline, naphtha and fuel oil, which are used to heat homes and electric vessels.

According to the Energy Information Administration, US producers pumping 17% less crude oil on the eve of the epidemic.

According to Morgan Stanley analyst Martizen Rats, in 2020 the amount of crude oil and petroleum products worldwide decreased by about 5%.

There is no shortage of oil, but a sign stems from the relationship between current and future prices in the market. Spots have climbed a premium line to drop prices, which suggests that traders are willing to pay more for immediate access to oil.

On Friday, the WTI contracts that will be delivered next month will be $ 5.16 more per barrel than the contract for crude oil that will change hands in March 2022. This is the largest premium for the front month since the start of the epidemic and contrasted with a historically large discount last April, when a glare of oil pushed WTI prices down to zero.

“It’s a sharp indicator,” said Scott Shelton, an energy analyst and broker at United Shell. “I don’t think there’s any question about it.”

Analysts say this dynamic – known as backwardness – has been exaggerated by a slowdown in the purchase of long-term energy contracts by airlines and other companies that buy them to lower fuel prices.

Nevertheless, some investors say that the condition shows that the rally is going ahead. This gives traders an incentive to get the oil out of storage, as they earn more by selling it directly. In return, prices will increase by reducing supply. Lower forward prices also make it harder for producers to lock in profits for future selling barrels, encouraging them to keep oil in the ground.

Mark Hume, co-manager of Blackrock’s BGF World Energy Fund, said backwardation could encourage more money managers to place bets on crude. When spot barrel oil receives a premium, futures make money gains when the approach ends and they flip their positions further into later dated contracts.

According to Ruhani Aggarwal, an analyst at JPMorgan Chase & Co., the opportunity to capture this additional return enhances the current uptake in recent months about raw materials in commodity markets.

Nevertheless, some analysts believe investors are overly optimistic, saying the oil market is facing hurdles, including the possibility of increasing Iran’s exports. In addition, new coronovirus variants may impose further restrictions on movement.

Helima Croft, global head of commodity strategy at RBC Capital Markets, said, “When we agreed to say that we were over with the virus, the virus is no longer with us.”

write to Joe Wall

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