Oil advanced near $60 a barrel as global supplies tighten and the demand outlook improves with the rollout of Covid-19 vaccines.
Futures in London rose 0.9% after capping a third weekly gain. A year after the pandemic kept millions home, grounding planes and devastating fuel demand, a rebound in consumption along with output curbs is leading to a rapid tightening of markets.
Timespreads for the global benchmark Brent and US crude have recently firmed in a backwardation structure, indicating bullishness.
While the number of vessels sailing toward China jumped to a six-month high on Friday, signaling robust demand from the world’s biggest importer, top independent traders Vitol SA and Gunvor Group Ltd have expressed caution about the recent surge in prices.
At least one technical indicator is also showing that oil is overbought and due for a correction.
Oil has rallied since the end of October amid Covid-19 vaccine breakthroughs and after Saudi Arabia pledged to deepen output cuts.
OPEC+ has vowed to quickly clear the surplus left behind by the pandemic, but there are still concerns about near-term demand, with a new virus variant spreading in the U.S. and other regions across the world grappling with lockdowns.
“The fundamental picture of demand improvement and discipline on the supply side suggests there is clear upside for the market,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific in Sydney.
“OPEC+ discipline has been a key to the gains.”
Chinese demand continues to be a driver for the market, despite concerns about a recent virus resurgence. As of Friday, 127 supertankers were heading toward the country, which if fully laden, would deliver in excess of 250 million barrels. Royal Dutch Shell Plc chief executive officer Ben Van Beurden said last week that fuel sales in China are back into “significant growth mode.”
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.