BusinessOil Prices Soar Past $60

Oil Prices Soar Past $60

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BEVERLY HILLS, February 08, (THEWILL) – Oil prices today soared to their highest in a year, with Brent futures jumping over $60 a barrel, courtesy supply cuts among key producers and hopes that the US will roll out economic stimulus measures that will boost demand.

Brent crude for April clocked in at $60.06 a barrel, recording the highest rate in 13 months.

The front-month contract was at $59.98 by 0537 GMT, up 64 cents, or 1.1 per cent.

US West Texas Intermediate crude futures for March went up 65 cents, or 1.1 per cent, to $57.50 a barrel, the best since January last year.

Saudi Arabia’s pledge to make more supply cuts in February and March against the backdrop of concomitant reductions by other members of the Organisation of the Petroleum Exporting Countries (OPEC) allies like Russia has provided great impetus for the global market and assisted prices.

In a sign that prompt supplies are tightening, the six-month Brent spread settled at $2.33 on Friday after hitting a high of $2.44, its widest in a year.

Hedge funds are turning bullish on oil once again, betting the pandemic and investors’ environmental focus has severely damaged companies’ ability to ramp up production.

Such limitations on supply would push prices to multi-year highs and keep them there for two years or more, several hedge funds said.

Global oil benchmark Brent has jumped 59% since early November when news of successful vaccines emerged, after COVID-19 travel curbs and lockdowns last year dropped fuel demand and collapsed oil prices.

U.S. crude has climbed 54% to around $57 per barrel during the same period.

Pundits suggest that by summer, when vaccines should have received wider circulation, holiday travels would soar and demand would sky-rocket.

Tawil predicted prices of $70 to $80 a barrel for Brent by the end of 2021 and is investing long independent oil and gas producers.

Hedge funds’ bullish bets come despite the International Energy Agency warning in January, a spike in new coronavirus cases will hamper oil demand this year, and a slow economic recovery would delay a full rebound in world energy demand to 2025.

Normally, oil producers would ramp up production as prices increase, but a move by environmentally focused investors from fossil fuels to renewables and caution by lenders leaves them hard-pressed to respond, hedge funds and other investors say.

The pace of output recovery in the United States, the world’s No. 1 oil producer, is forecast to be slow and will not top its 2019 record of 12.25 million barrels per day (bpd) until 2023. Production in 2020 tumbled 6.4% to 11.47 million bpd.

OPEC, which has also revised down demand growth, however, still expects output cuts to prevent a glut throughout 2021.

“We are going to see some incredible oil prices over the next couple of years, incredibly hot,” said Tawil.

Global crude and condensate production was down 8% in December from February 2020, prior to the pandemic’s spread accelerating, according to Rystad Energy.

North America’s output was down 9.5% and Europe’s production declined just 1% over the same time period.

U.S. sanctions against Venezuela and declining oilfields in Mexico have kept oil output from Latin America sluggish.

Some banks are forecasting that the United States, which leads with the number of COVID-19 cases, would reach herd immunity by July.

This is expected to greatly stimulate oil demand, said Jean-Louis Le Mee, head of London-based sedge fund Westbeck Capital Management, which is long a mix of oil futures and equities.

“Oil companies, for the first time in a long time, are likely to make a big comeback. We have all the ingredients for an extraordinary bull market in oil for the next few years,” he said.

In the US, hedge funds increased their allocation to Exxon Mobil Corp by 21,314 shares in the third quarter, the most recent U.S. filings compiled by Symmetric.io showed.

Hedge funds added another 9,070 shares of U.S. majors ConocoPhillips and 4,144 to Chevron Corp over the same time period.

Elsewhere, shorting activity in BP PLC fell by 16 million shares on Feb. 4 but increased slightly in European oil major Royal Dutch Shell Plc by 1.9 million shares, data from FIS’ Astec Analytics showed.

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