The dynamic momentum in the oil price sees no letting up with sentiment strong, demand re-emerging and OPEC keeping a close eye on supply.
Checking the markets on Friday, Brent crude was trading close to US$70 with WTI not far from US$66 a barrel.
Crude hit its highest closing price since May 2019.
Economic data has been improving in fits and starts around the world and as the vaccines are rolled out to millions of people, positive sentiment is returning to the markets. The unemployment situation in the US is improving as more parts of the economy re-open.
Gasoline inventories in the US fell this week as refineries met domestic demand. Gasoline stocks were down by 11.9 million barrels according to the US Energy Information Administration.
The market was expecting a much smaller decline. Gasoline stocks are now just over 231 million barrels. Crude inventories rose by more than 13 million barrels, due mainly to the fallout from the severe winter storm earlier this month. With crude inventories remaining high, OPEC and friends will be confident they made the right decision not to add additional barrels to the market earlier this month.
OPEC released its monthly oil market report this week with projections that global oil demand will rise by 5.9 million barrels a day this year.
We need to remember that it was down 9.6 million barrels a day in 2020 to 90.4 million barrels and in 2019, we were looking at oil demand figures closer to 100 million barrels a day.
So, the recovery is not back to peak levels yet, but OPEC is hopeful. “Elevated unemployment rates in the US slowed the recovery process. In contrast, oil demand in the second half of 2021 is adjusted higher, reflecting expectations for a stronger economic recovery with the positive impact of vaccination rollouts.”
The report also says that “after a contraction of 3.5 percent in 2020, US economic growth in 2021 is now expected to reach 4.8 percent.” Europe is also projecting slow growth with China up by 8 percent and India expecting growth of 9 percent this year.
There’s been much debate among analysts since the OPEC+ decision this month. The CEO of Crystol Energy, Carole Nakhle says she fears the market was caught by surprise and the decision not to increase production is adding to the volatility we see in the oil price.
“OPEC+ recent decisions have become more impulsive due to the monthly meetings and last-minute production cuts by Saudi Arabia.” Opec+ will meet again on 1st of April.
The oil market is strong right now and many analysts expect that strength to remain all year. Governments are getting concerned about inflation and the dollar is weak.
The old adage about the cure for the high oil price will concern many as the fear of demand destruction could kick in.
We’ve been down this road before; a fact all players should remember and therefore approach with caution.