Oil in London continued to race higher alongside a broader market rally as signs of progress on another U.S. fiscal stimulus package raised hopes for a demand boost ahead of a widely distributed vaccine.
Futures in London rose as much as 4.4% to almost $51 a barrel for the first time since March. U.S. equities rebounded from session lows after Treasury Secretary Steven Mnuchin said negotiators are making progress on stimulus and more talks are set for Thursday. The U.S. dollar also weakened, raising the appeal for commodities priced in the currency.
Prices had already surged fresh nine-month highs off the back of continuing signs of robust demand in Asia and optimism surrounding vaccine rollouts. Chinese refiners are moving early to buy crude from as far afield as the North Sea, while Indian Oil Corp., which has been seeking spot cargoes in recent days, said the nation’s petroleum products consumption is almost back to normal.
“The euphoria over the potential economic recovery post-virus is really driving the rally, and we’re not only seeing it in crude markets,” said Gary Cunningham, a director at Stamford, Connecticut-based Tradition Energy. “The U.S. stimulus package still has some work to be done, but there’s some more positive news there.”
Underpinning the recent surge in crude prices has been a swift reshaping along oil’s forward curve as traders look ahead to a recovery toward normal demand levels in light of a vaccine. The curve is now trading in a structure known as backwardation that makes it profitable to roll contracts from one month to the next, which is also attracting a rush of new flows to the market.
“Now that we’ve already started the deployment of vaccines in some part of the world, there is optimism about the normalization of the global economy and therefore higher oil prices,” said Bart Melek, the head of global commodity strategy at TD Securities.
It’s not just Asia where demand is recovering. There are also some bright spots in Europe as well. The U.K., which emerged from a second lockdown this month, saw road fuel sales jump by almost 10% last week. Fuel use in Brazil has surpassed pre-virus levels. Still, it’s a less certain picture in the U.S., where gasoline consumption has dropped to the lowest since May.
The oil market’s price structure remains healthy. Brent’s nearest timespread is trading in a bullish backwardation—where nearby futures are more expensive than later ones—indicating supply is tightening.
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