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  • Oil closes lower, in spite of mounting evidence of the market strength

Oil closes lower, in spite of mounting evidence of the market strength
Oil & Gas | 09 April 2021

Oil closed lower on Thursday, yet its underlying market structure firmed, as investors evaluated the challenges to a global economic recovery.

West Texas Intermediate crude futures slipped 0.3% on Thursday after a rough session. Notwithstanding fluctuations in headline prices, the oil futures curve is showing strength. The premium on the closest worldwide benchmark Brent contract rose to the most noteworthy in seven days against the next month. The bullish backwardation structure shows tightening supplies. WTI's so-called prompt spread additionally reinforced.

However, indications of a mixed economic recovery forced benchmark crude. In the U.S., where a rebound in consumption is happening in the midst of a boundless vaccine rollout, jobless claims unexpectedly rose, featuring the choppy road ahead. Then, India, the world's third-greatest oil importer, reported a record number of daily Covid-19 cases, and a few countries including the Netherlands are restricting the utilization of a Covid-19 vaccine because of potential complications.

"The market's waiting to see what direction this goes," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. "The question is, is demand really recovering enough to absorb the increase in OPEC output?”

U.S. benchmark crude futures have been stuck in a restricted band around $60 a barrel lately. While indications of demand picking up in places like the U.S. has buoyed sentiment, new Covid-19 outbreaks and renewed lockdowns in different parts of the world have acted as a counterweight. Regardless of recent price setbacks, Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman said the nation stays certain about its decision to gradually increase production.

"CTA and momentum funds remain directionally long oil futures, however, have pared down position sizes in recent days and weeks because of elevated market volatility and a stronger U.S. dollar," said Ryan Fitzmaurice, commodities strategist at Rabobank. These factors are beginning to switch, which could flag that the liquidation phase is approaching an end for CTAs, he added.

Prices:

  • WTI for May conveyance slipped 17 cents to settle at $59.60 a barrel
  • Brent for June settlement acquired 4 cents to end the session at $63.20 a barrel

With virus cases proceeding to flare up, the odds of a simultaneous reopening of the global economy over the northern-hemisphere summer have diminished, RBC Capital Markets analysts wrote in a report. In any case, it is conceivable that a facilitating of lockdowns could be phased throughout the world over that period, they said, helping the market as fall approaches.

Facts Global Energy expanded its estimate for worldwide oil demand growth this year to 6 million barrels a day, which was up by 75,000 barrels per day from its past figure. However, U.K. government modeling shows a relaxation in limitations that may prompt more hospitalizations and deaths, FGE said.

In the meantime, development on conversations between Iran, the U.S., and other world forces encompassing the recovery of a 2015 nuclear deal are adding further intricacy to the market’s supply and demand equation. Iran's central negotiator at the discussions in Vienna said the sides were focusing on eliminating U.S. sanctions in a single step, as indicated by a statement that didn't determine what Tehran was giving in return. The U.S. hasn't yet reacted to the remarks.

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