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Oil Prices Surge As Demand Increases And Inventories Decline
Oil & Gas | 13 February 2021

The Oil sector of the U.S. ascended for a fourth straight week as efforts to clear an oil surplus are seen holding the market over until demand comes back in force. Touching 13-month highs as investors kept betting that fuel demand will rise while OPEC and allied producers kept a lid on supply.

Global benchmark Brent futures on Friday surged the most since early January, while West Texas Intermediate crude settled at $60 a barrel for the first time in more than a year. Signs of inventories declining in the U.S. and elsewhere pointed to the success OPEC+ has had in draining a surplus left in the wake of a historic demand drop due to the pandemic.

OPEC is expecting a stronger second half of 2021, suggesting that global inventories will face sharp reduction this week unless the cartel boosts supply. Iraq at a meeting in March said OPEC+ is unlikely to change its output policy. In the U.S., crude stockpiles are at the lowest in nearly a year.

One of the most considerable moves in the market this week has been in Brent’s futures curve. The supposed abatement between the first and third futures contract, which indicates tight supplies, escalated to its strongest level since January 2020. At the same time, brokers reported a frenzy of bullish trading in the key Dated-Frontline swap, which is tied to physical North Sea markets, flipping to a premium for the first time in a year.

There have been further signs of supply being compelled in the near term. A frigid Arctic blast spreading across America’s largest shale oil patch has caused crude flowing from wells to slow or halt completely. Traders say several hundred barrels a day of output in the Permian Basin could be impacted by shutdowns that began Thursday.

The U.S. government on Tuesday lowered its outlook for crude oil production in 2021 to 11.02 million barrels per day (BPD) from 11.1 million BPD previously forecast.

WTI futures’ 14-day Relative Strength Index increased since 1999 to the most overbought this week and remained surpassing 70 in a sign, that the commodity was due for a withdraw. In the meanwhile, the Covid-19 pandemic continued to crimp fuel consumption from China to the U.S., with the International Energy Agency cutting its demand estimation for 2021 and describing the market as frail.

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