Crude oil futures climb as pandemic concerns recede, tight supply

Singapore — 0300 GMT: Crude oil futures strengthened during mid-morning trade in Asia Feb. 9, as expectations of a return to pre-coronavirus consumption patterns amid the abating crisis and hopes of an upcoming US stimulus package lifted demand sentiment. The production curbs by OPEC+ along with lower year-on-year US shale production has tightened supply, providing yet another boost to the international crude markers.

At 11:00 am Singapore time (0300 GMT), the ICE Brent April contract was up 61 cents/b (1%) from the Feb. 8 settle to $61.17/b, while the March NYMEX light sweet crude contract was up 52 cents/b (0.9%) to $58.49/b.

The front month ICE Brent crude futures contract hurtled past the $60/b milestone for the first time in a year as fundamentals improved on both the demand and supply side.

According to analysts, signs of recovering demand could be seen across the globe, with Chinese imports at a six-month high last week, Indian demand returning to pre-pandemic levels amid increased car use, and the US becoming the largest buyer of its domestic crude in January.

"Optimism is high that vaccine rollouts will have key parts of the global economy's return to normal," Edward Moya, senior market analyst at OANDA, said in a Feb. 9 note.

Along with vaccinations, the demand sentiment has been boosted by rising hopes of a stimulus package in the US, analysts at ANZ said in a Feb. 9 note.

Supply side restraint from oil producers in both the OPEC+ alliance and the US has also contributed to the bull run in the oil markets, analysts said.

"The supply side of the oil equation is not at risk as the Saudis have taken that risk off the table for the next couple of months and as US shale producers' output is almost 20% less than last year," Moya said.

Analysts at ANZ echoed a similar sentiment, adding that total rig count in the US remains 60% below levels seen prior to the pandemic, demonstrating a reluctance to increase drilling activity.

However, some analysts remained cautious of the optimism surrounding oil markets, warning that it may have overestimated the effect of the improving fundamentals.

"Oil is surging on a combination of supply constraints and rising demand (both current and anticipated), [but] a word of caution is due as both the WTI and Brent markets are well in thick of overbought territory," Stephen Innes, chief global markets strategist at Axi, said in a Feb. 9 note.

Energy producers have increased their downside risk cover as they remain slightly skeptical of the recent uptrend in crude prices, and retail investors expect prices to correct downwards in the near term despite being bullish in the long term, according to S&P Global Platts Analytics.

Meanwhile, market participants are looking for fresh cues on the supply outlook in the upcoming weekly inventory reports from the American Petroleum Institute and the US Energy Information Administration, due later Feb. 9 and Feb. 10, respectively.

Commercial crude stocks are expected to have declined 2.7 million barrels to around 473 million barrels last week, analysts surveyed by Platts said, leaving them just 3% above the five-year average of US Energy Information Administration data; the narrowest surplus since the week ended April 3, 2020.