Crude oil futures stronger on hopes of pandemic easing, improved fundamentals

Singapore — 0311 GMT: Crude oil futures continued on an upward trajectory during mid-morning trade in Asia Feb. 4, as the abatement of the pandemic situation and simmering hopes over a US stimulus package provided a boost to oil markets already invigorated by an uptick in demand and the start of Saudi Arabia's output cut.

At 11:11 am Singapore time (0311 GMT), the ICE Brent April contract was up 44 cents/b (0.74%) from the Feb. 4 settle to $59.28/b, while the March NYMEX light sweet crude contract was up 40 cents/b (0.71%) to $56.63/b

The bullish step in the oil market comes amid signs that the pandemic is starting to ease globally, with expectations of a colossal US stimulus package also inspiring confidence among investors that the economic climate will soon improve.

"There are a number of factors behind crude's rise, but head and shoulders above all of them is the observation that the coronavirus might finally be retreating. It is a natural abatement for most part, but it is also being helped by increased vaccine coverage," Vandana Hari, CEO of Vanda Insights, told S&P Global Platts Feb. 5.

"Investors are confident that this is the beginning of the end for the pandemic as it can be seen that infection, hospitalization and fatality numbers have steadily been dropping in the past two to three weeks globally," Hari added.

Analysts added that the demand outlook for oil has improved significantly as the pandemic situation has alleviated.

In a Feb. 5 note, Stephen Innes, chief global market strategist at Axi brought to attention that two VLCCs were scheduled to deliver North Sea oil to China in late March, adding this "confirms that real demand is driving the front end of the curve."

Analysts also said that investors viewed Saudi Aramco's release of the official selling prices with a bullish hue. OSPs for Saudi Aramco's crude into Asia remained unchanged for March, while OSPs for buyers in Europe and the US were raised.

The release of Saudi Aramco's OSPs follows the start of Saudi Arabia's 1 million b/d output cut, which began on Feb. 1, and has curtailed supply in the market.

"The Saudis had a very different view of demand when they announced their output cuts but, being hawkish, they will likely persist with them regardless of the strong demand. This could see Brent hurtling past the $60/b mark," Hari concluded.