New York—Crude futures settled higher Feb. 5 amid tightened supply outlooks, demand optimism and a weaker US dollar.
NYMEX March WTI settled up 62 cents at $56.85/b and ICE April Brent was up 50 cents at $59.35/b.Oil market fundamentals have tightened in recent weeks as OPEC+ production cuts have shored up supply outlooks and a second wave pandemic showed signs of receding in the US, UK, and China.
The seven-day moving average of new COVID-19 infections in the US fell to 130,569 on Feb. 4, according to data from The COVID Tracking Project, putting it at levels last seen in early-November.
Britain is currently on track to supply at least one vaccine shot to all residents by the end of June, with the most vulnerable set to receive their first shots by Feb. 15, according to media reports.
China reported just 20 cases of COVID-19 Feb. 4, the lowest daily total since Dec. 31, the National Health Commission said in a statement Feb. 5.
"With COVID-19 cases now declining in certain regions, including the US and the UK, there will be a glimmer of hope that the worst is now behind us, particularly as the rolling out of vaccinations picks up," ING Economics analysts said in a note Feb. 5.
The Feb. 3 OPEC+ Joint Ministerial Monitoring Committee meeting highlighted the success of production cuts in lowering global oil inventories and made no recommendations for any changes to the alliance's production cut accord.
"Messaging from OPEC+ suggests the group isn't fazed by the rally in oil prices despite an improving demand outlook," TD Securities analysts said in a note.
Crude prices saw additional support from a weaker US dollar. The ICE US Dollar Index was holding just above 91 in afternoon trading, down from a two-month high close of 91.52 on Feb. 4.
Risks to the demand outlook persist. In Germany, government officials are mulling extending its current pandemic lockdown for a further two weeks, according to media reports, however no official decision has yet been made. Meanwhile US payrolls added just 49,000 jobs in January, Labor Department data showed Feb. 5, up from a December loss of 227,000 jobs but below market expectations.
NYMEX March RBOB settled up 45 points at $1.6493/gal and March ULSD climbed 1.32 cents higher to $1.7137/gal.
RBOB cracks continued to weaken, with the Front-month ICE New York Harbor crack versus Brent falling to $14.28/b in afternoon trading from a close of $14.42/b Feb. 4.
Front-month Brent hit a session high of $59.79/b, testing the $60/b level last seen in in late January 2020. Prices are likely to face resistance at this level, analyst said, as further gains could prompt more supply to enter the market.
"Brent is eyeing the $60 level now that OPEC+ has successfully eased most supply side concerns and optimism on the COVID front improves globally," OANDA senior market analyst Edward Moya said in a note.
Crude forward structure has significantly strengthened amid the rally at the front end of the price curve. Year-ahead WTI has fallen to a more than $4/b discount to front month, opening the widest backwardation since early January 2020. However, US drilling activity, despite steadily climbing in recent weeks, remains well behind year-ago levels.
While a sharp reduction in upstream capital budgets is likely to present a headwind to new drilling ventures, the recovery in crude price and forward structure is likely to incentivize stepped up investment, leading to higher output and thus capping further upside price movement.
