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Crude Oil Hits Pre-Pandemic Highs on Bets Vaccine to Keep Rebalancing Intact

CommoditiesJan 12, 2021 02:41PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – Crude oil prices jumped to pre-pandemic 11-month highs on Tuesday as investors bet the pandemic's grip on energy demand is coming to an end as the rollout of vaccines and stimulus will keep rebalancing on track.

On the New York Mercantile Exchange WTI crude futures for February delivery rose 96 cents to settle at $53.21 a barrel, while on London's Intercontinental Exchange (NYSE:ICE), Brent for March delivery rose 92 cents to trade at $56.58 a barrel.

Goldman Sachs (NYSE:GS) forecast Brent crude rising to $65 a barrel by mid-year, ahead of their previous estimate for the end of 2021 on expectations that the tightening in supplies will continue.

"We have long held a bullish view for oil prices in 2021 and the events of the first weeks of the year have sharply reduced the risks that the market rebalancing gets derailed," the Goldman Sachs analysts said.

The expectations for rebalancing to continue have been underpinned by a backdrop of positive factors including Saudi Arabia's unexpected decision to trim production.

Saudi Arabia said it plans to trim production by an extra 1 million barrels per day (bpd) in February and March to prevent a glut in inventories.

Bets on tightening global supplies have also been bolstered by falling crude inventories over two weeks, with economists forecasting the U.S. to report a third weekly drop of over 2 million barrels for the week ended Jan. 8.

Ahead of the weekly U.S. petroleum report due Wednesday, market participants will parse the American Petroleum Institute's supply report due 4.30 PM ET.

The continued roll out of a vaccine, meanwhile, is key to plugging the demand gap in jet fuel demand in the wake of rising infections that have forced countries to impose restrictions to stem the spread of the virus.

"Oil demand remains very levered to reaching herd immunity, with half of global oil demand losses still coming from jet, where international travel remains down 75% despite domestic flying only down 28%," Goldman Sachs said.

The roll out of further stimulus in the U.S., meanwhile, will add further liquidity, keeping the dollar on the back foot and proving additional support for commodities including crude.

Crude Oil Hits Pre-Pandemic Highs on Bets Vaccine to Keep Rebalancing Intact
 

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Comments (9)
Brady Murray
Brady Murray Jan 12, 2021 6:33PM ET
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My MRO bought in April is smoking!!!
Ali Abdul
Ali Abdul Jan 12, 2021 5:39PM ET
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Ok sounds like now is the time to go long til Feb.
cb cb
cb cb Jan 12, 2021 4:16PM ET
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Its getting harder and harder to come up with a title that makes sense huh?
Emil Miclea
Emil Miclea Jan 12, 2021 3:39PM ET
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Im going to say it here today !! Crude oil is amd will be manipulated . By the summer it will hit $70-$75 a barrell . Any gulf war will spike this to $100 a barrell . Oil is manipuliated and it will spike !
Ernest Wong CA
Ernest Wong CA Jan 12, 2021 3:39PM ET
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oil price been manipulated - yes and always; up to or above $100? - have always said this since 2019
Carlos Sacasa
Carlos Sacasa Jan 12, 2021 3:25PM ET
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what happens when demand returns? is the industry prepared for it?
Joe Mead
Joementum Jan 12, 2021 3:25PM ET
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I don't see why not its not like all the rigs disappeared they are just at the yard
Ghansham Raja
Ghansham Raja Jan 12, 2021 3:25PM ET
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Oil industry is eagerly waiting for demand to go up
Ernest Wong CA
Ernest Wong CA Jan 12, 2021 3:23PM ET
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where're the signs of demand worries? so worsening pandemic could boost oil price? following this logic does it mean OPEC+ would love to see more deaths, infections and lockdowns???
Dmitry Yeliosof
Dmitry Yeliosof Jan 12, 2021 3:16PM ET
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what happens to wti when # of rigs returns to pre-pandemic?
Casador Del Oso
Casador Del Oso Jan 12, 2021 3:05PM ET
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so gasoline prices will rise before any economic recovery occurs. sounds like a recipe for slow growth to me.
SquadW Name
SquadW Jan 12, 2021 2:54PM ET
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oil is still too cheap, inflation and weak dollar in 2021 will make it 70$ +
Andrea Pero
Andrea Pero Jan 12, 2021 2:54PM ET
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question is: how long dollar will be weak ?
Joel Schwartz
Joel Schwartz Jan 12, 2021 2:54PM ET
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Andrea Pero dollar already rebounded. 10yr bond yields have been outperforming SPY for the last two weeks now as well.
 
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