ENB Publishers Notes: Bulls ARE BACK IN TOWN baby as crude pushes for $55 off improved supply/demand outlook
Singapore — 0323 GMT: Crude oil futures rose mid-morning in Asia Feb. 2 on the back of an improvement in the crude oil demand outlook and managed supply levels after it was revealed that OPEC+ had adhered to its production cut commitments in January.
At 11:23 am Singapore time (0323 GMT), the ICE Brent April contract was up 57 cents/b (1.03%) from the Feb. 1 settle to $56.92/b, while the March NYMEX light sweet crude contract was up 60 cents/b (1.12%) to $54.15/b.
“Oil prices are rallying alongside US stocks and as optimism improves that the world is getting closer to returning to pre-pandemic crude demand levels. The world is seeing several COVID vaccines get the greenlight and it seems progress is being made on fixing production and distribution concerns,” Edward Moya, senior market analyst at OANDA, said in a Feb. 2 note.
According to a note by ANZ analysts, the shift in sentiment for demand also came on the back of positive economic data that lifted the broader markets. The analysts said the US Institute of Supply Management’s Purchasing Managers Index was recorded at 58.7 for January 2021 — a reading above 50 indicates an expansion in the manufacturing sector — and is holding up well against the pandemic, which bodes well for energy demand.
The market is also looking forward to the outcome of the ongoing US fiscal stimulus negotiations, which will affect the pace of economic recovery.
“Biden administration being in place and talks of US stimulus are giving comfort to the market,” David Lennox, a resource analyst at Fat Prophets told S&P Global Platts Feb. 2.
Analysts also said that strong compliance to production cut commitments by OPEC+ during January, and the beginning of Saudi Arabia’s voluntary 1 million b/d supply cuts on Feb. 1, are keeping supply in the market tight and supporting crude oil markets.
“OPEC+ didn’t disappoint as the production group’s compliance level turned more than a few oil traders’ heads on a swivel overnight. Oil rallied as OPEC+ production compliance, ringing in at 99% helped lift prices,” Axis’ chief global markets strategist Stephen Innes said in a Feb. 2 note.
While the narrowing of the gap between supply and demand is supporting the market, some uncertainties over demand recovery remain amid the progression of the coronavirus pandemic.
Travel restrictions in China ahead of the Lunar New Year holidays is keeping oil demand weak in the region, ANZ analysts said, while other analysts noted that the spread of highly transmissible mutant coronavirus strains may hamper the nascent demand recovery going forward.
Meanwhile, analysts surveyed by S&P Global Platts were bullish in their forecast for US crude stocks in the week ended Jan. 29, expecting inventories to fall by 2.4 million barrels to around 474.3 million barrels on account of strong US exports. According to data from cFlow, Platts trade-flow software, US exports averaged 4.02 million b/d in the week ended Jan. 29.
Comprehensive data on weekly inventory reports by the American Petroleum Institute and the US Energy Information Administration will be released on Feb. 2 and Feb. 3, respectively.
