New York — 0252 GMT: Crude oil futures strengthened during mid-morning trade in Asia Feb. 15 as the demand outlook brightened on hopes that the coronavirus pandemic is abating and on expectations of an upcoming stimulus package from the US. The gains are also buoyed by the tightness in supply from OPEC+ production cuts and supplemented by disrupted production in the US.
At 10:52 am Singapore time (0252 GMT), the ICE Brent April contract was up by $1.26/b (2.01%) from the Feb. 12 settle to $63.68/b, while the March NYMEX light sweet crude contract was up $1.26/b (2.11%) to $60.73/b.
The progress made in combating the coronavirus pandemic globally contributed to the strong outlook for economic recovery across the broader financial markets, including oil.
“More countries and regions are easing lockdown measures with vaccine rollouts helping to contain the spread of the coronavirus,” Margaret Yang, strategist at DailyFX, said in a Feb. 15 note.
“A marked decline in daily new infections painted a brighter outlook of economic recovery and normalization of business activity. A better-handled pandemic situation, alongside an impending Democratic fiscal stimulus package, have buoyed reflation hopes and led equity, crude oil and industrial metals higher,” she added.
The US stimulus package, currently proposed at $1.9 trillion, is making significant headway in its approval process, giving market participants hope for a smooth and speedy economic recovery in the US.
“A risk-on tone across markets continues to benefit commodity markets…with investors focused on the prospect of US stimulus measures boosting demand,” ANZ analysts said in a Feb. 15 note.
Alongside bolstered expectations of demand recovery, supply side fundamentals are also providing support to the market, fueling the continued rally.
The OPEC+ alliance is maintaining supply curbs through the month, with Saudi Arabia reducing its production voluntarily by an additional 1 million b/d till March, which is clearing oil surplus in the market, according to analysts.
Furthermore, the risk of increased production from US shale oil companies amid rising oil prices has not materialized due to poor weather conditions in the region, making production difficult and keeping supply in the global markets tight.
“A barrage of a winter storm raging across the Permian Basin [is] resulting in crude streaming from those wells to slow or halt completely according to boots on the ground,” Stephen Innes, chief global strategist at Axi, said in a Feb. 15 note.
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