By Adedapo Adesanya
Oil prices rose more than 2 per cent on Monday, buoyed by the beginning of another supply cut from oil king, Saudi Arabia, and supported by optimism over demand recovering this year.
At the session, the Brent crude gained $1.39 or 2.53 per cent to sell at $56.43 per barrel, while the United States’ West Texas Intermediate (WTI) made an appreciation of $1.45 or 2.78 per cent to trade at $53.65 per barrel.
The sign of market tightness with Saudi Arabia’s unilateral production cut of one million barrels per day set to start this month helped boost the market as people focused on it and falling inventories.
This was further backed by the US government data last week which showed a 2.3 million-barrel drawdown in stocks at the Cushing, Oklahoma, delivery hub for crude futures. Another 2.3 million-barrel weekly decline is expected, according to analysts.
Saudi Aramco also sees oil demand returning to pre-COVID levels later this year, saying it is confident the worst of the pandemic is now in the rearview mirror.
Goldman Sachs added to this by saying prices could rise to $65 by July, forecasting an oil market deficit of 900,000 barrels per day in the first half of 2021, a higher level than its previous prediction of 500,000 barrels per day.
The market is choosing to see the positives as vaccines are rolled out albeit slowly, and with the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) still restraining output, there are hopes that inventories will fall sharply this month.
Despite these, the market still faces lingering near-term risks to global reopening efforts. The outlook for Asian transport fuels has worsened again as a resurgent coronavirus in the region has hampered mobility.
However, crude oil markets remain in good shape to tighten in 2021, and the latest OPEC data suggest the cartel has been diligent in living up to their deal. It was reported that oil output rose for a seventh month in January after the group and its allies agreed to ease supply curbs further, although the production growth was smaller than expected.
Dipo Olowookere