Oil Climbs Past $54 as Demand Hopes Grow

Oil (CL) rose to a high of $54.45 today as dwindling stockpiles and reviving economies raised optimism for demand returning to pre-COVID-19 levels.

WTI Crude futures are now near their 11-month high after Saudi Arabia began production cutbacks of 1 million barrels of Oil each day for the next two months, hoping to tighten the outlook on supply. Brent Oil (EB) also saw today’s price reach a high of  $57.26 This news was preceded by the release of preliminary data on January 31 showing that the 23 OPEC+ countries were able to achieve 99% compliance with major production restrictions announced in December 2020.

OPEC+ Oil production goals did increase by a small amount in January this year and are planned to remain unchanged through March. However, Iraq, the third-largest OPEC+ producer, agreed to join Saudi Arabia in reducing daily output by 3.6 million barrels through February.

This recovery comes as many countries roll out vaccines and reduce restrictions on movement aimed at combating COVID-19. As the virus strangled travel due to lockdowns last year, the Oil industry was hit by a massive shockwave that left Oil tankers sitting full in docks. By April 2020, Oil prices had gone into negative territory for the first time ever. It was at this point when OPEC+ agreed to a record 10% cut in output, although by itself this was not enough to balance the Oil markets.

USD Weakness and Vaccines Give Oil a Boost

Another factor in Oil’s favour is the weakness of the U.S. Dollar. Commodities priced in USD become more attractive as the price of the dollar falls. Additionally, as countries begin to roll out the Pfizer (PFE) and Moderna (MRNA) vaccines, the return to normalisation could also spark increased demand for Oil, despite some short-term worries about new strains and immunisation problems.

Despite rising optimism about post-COVID-19 demand, traders will still need to watch oil prices carefully for signs that OPEC+ countries are breaking quotas or for a strengthening dollar.