Oil in New York rose to the highest intraday level in more than a year as output curbs from top producers whittle down global inventories.
Futures climbed as much as 2.6% on Friday, set for a second straight weekly gain, alongside a firmer U.S. equity market.
OPEC+ continues to slash output and the group expects a stronger second half of the year, indicating this week that global inventories will face sharp declines unless the cartel boosts supply.
Iraq said OPEC+ is unlikely to change its output policy at a March meeting. In the U.S., crude stockpiles are at the lowest in nearly a year.
“This time of year, there’s usually builds,” said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis. “The draws we’ve been getting are pretty surprising, setting up a really bullish backdrop.”
The Brent market’s structure also strengthened Friday, with its so-called backwardation indicating tightening supplies.
The nearest timespread traded as strong as 55 cents a barrel, while swaps tied to the North Sea physical market flipped from a discount to a premium, according to brokerage Eagle Commodities.
The Covid-19 pandemic continues to crimp fuel consumption from China to the U.S., with the International Energy Agency cutting its demand forecast for 2021 and describing the market as fragile.
However, oil has recovered from the depths of the pandemic. Prompt timespreads have widened in a bullish backwardation structure, helping to unwind bloated stockpiles held in onshore tanks and on ships.
Meanwhile, oil demand could rise at the fastest pace since the 1970s over the next three years, according to Bank of America Global Research.
“Inflation fears are increasing rapidly and there is a historic amount of capital filtering through global financial markets due to all of the stimulus programs,” Ryan Fitzmaurice, commodities strategist at Rabobank, said in a note. Large inflows into the space “speak to the fact that investors want to own commodities at the moment and are willing to overlook some of the weaker fundamental inputs to focus on the bigger picture at hand.”
West Texas Intermediate gained $1.17 to $59.41 a barrel at 11:50 a.m. in New York
Brent for April settlement rose $1.37 to $62.51 a barrel
Concerns still remain over whether crude’s rally is sustainable. WTI futures’ 14-day Relative Strength Index rose to the most overbought since 1999 this week and remains above 70 in a sign that the commodity is due for a pullback.
“Based on fundamental analysis, the case for further price gains is hard to make, although we are seeing optimism in financial markets in general,” said Hans van Cleef, senior energy economist at ABN Amro. “We think that much higher oil prices are not sustainable and that oil producers will then start to increase production.”