Oil prices hit highest levels in 13 months on back of supply cuts
A seventh straight session of gains sent oil prices to their highest levels since January 2020 this morning.
The rise was driven by a combination of supply cuts by major producers and optimism over a recovery in fuel demand support energy markets.
Benchmark Brent crude futures picked up 0.7 per cent to stand at $60.97 a barrel by the mid-morning.
US standard West Texas Intermediate crude (WTI) was up 0.5 per cent at $58.25 a barrel.
“We attribute the latest price surge first and foremost to financial market factors such as the considerable investor optimism and the again weaker U.S. dollar, and expect prices to correct,” Commerzbank analysts said in a note.
The dollar was down 0.4 per cent against a basket of currencies, making dollar-priced commodities more attractive to holders of other currencies.
The rise means that oil has eradicated the historic losses that were caused by the spread of the coronavirus pandemic last spring.
Prices fell to their lowest levels in decades – with WTI briefly trading in the negative for the first time ever – as demand collapsed amid worldwide lockdowns.
Since then, a combination of production curbs orchestrated by petroleum cartel Opec, as well as slowly rising demand, has brought prices back to pre-pandemc levels.
Rystad Energy’s oil markets analyst Louise Dickson said: “For now, the staggering ascent in oil prices is alive and well, thanks to both OPEC+ supply restraint and demand recovery optimism.
“As major voices around the world, such as the US Fed and Chinese refiners, are pointing towards an economic and oil demand recovery, the rise in oil prices is a natural and well-warranted market reaction.”
Top exporter Saudi Arabia is leading the supply squeeze, on top of cuts by producers in the Opec+ alliance, prompting forecasts of a supply deficit this year.
Additionally, Libyan oil production has fallen to 1.04m barrels per day (bpd) from 1.3m bpd late last year due to an ongoing strike by the Petroleum Facilities Guards, a Libyan oil source said on Monday.
Signaling no swift return of Iranian barrels into the market, Tehran and Washington appeared to be in deadlock over a resolution of sanctions on the Opec member.
Investors are also pinning hopes on an oil demand recovery when Covid-19 vaccines take effect, while a weak dollar has helped to shore up the price of commodities.
Investors are looking ahead to the US weekly oil inventories data due later on Tuesday.
US crude and gasoline stockpiles probably rose last week, while distillate stocks were seen down, a preliminary Reuters poll showed on Monday.