The Business Times

Oil advances with signs emerging of fuel consumption rebound

Published Fri, Mar 12, 2021 · 06:20 AM

[NEW YORK] Oil extended its rally alongside a weakening dollar as signs emerged that a recovery in fuel consumption is starting to gain more traction.

Futures in New York rose as much as 2.2 per cent on Thursday. Vehicle miles driven on US highways rose 10 per cent last week from the previous seven days, while UK road use has also been climbing. A surge in the margin on refining crude into petrol could drive an oil rally over the summer, according to RBC Capital Markets.

"Refined products and particularly gasoline has been leading the most recent charge higher in oil prices," said Ryan Fitzmaurice, commodities strategist at Rabobank. "On the demand-side, the vaccine rollout is progressing quite rapidly, boding well for a surge in summer driving, especially in the West which has lagged the economic recovery witnessed in Asia." There are risks to the recovery, though.

Opec downgraded its oil-market outlook over the next two quarters as the pandemic's effects will continue to be felt, the group said in its monthly report. Output from the Organization of Petroleum Exporting Countries fell last month as Saudi Arabia implemented extra cutbacks to speed the market's rebalancing.

While oil's rally of more than 30 per cent so far this year had taken a breather in recent days, the outlook for some of the world's biggest economies is starting to show the effects of vaccination efforts.

In the US, jobless claims fell to the lowest since November as inoculations accelerate and states eased more business restrictions.


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"The rise in oil prices today looks to come on the back of positive risk sentiment on global financial markets," said Jens Pedersen, senior analyst at Danske Bank. "With the next Opec+ meeting less than three weeks away there is a limit to how high prices can go due to the potential for Opec+ to start normalizing output."

It's possible that US crude may have to trade at a bigger discount to the global Brent benchmark to boost US crude exports, according to consultant Energy Aspects. That comes as the Brent market faces headwinds from refinery maintenance and sharp cuts to Saudi crude prices, forcing US crude to trade even lower in turn, the consultant said.

Meanwhile, calendar spreads indicating longer-term strength rallied on Thursday. The spread between WTI's nearest December contract topped US$5 a barrel in backwardation - indicating tightening supply and demand - near the strongest level since September 2019.



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