Crude oil futures rangebound amid improving fundamentals, overheating concerns

Singapore — 0234 GMT: Crude oil futures were rangebound in mid-morning trade in Asia Feb. 10 as improving fundamentals for crude oil were weighed against concerns of an overheated market.

At 10:34 am Singapore time (0234 GMT), the ICE Brent April contract was up 1 cent/b (0.02%) from the Feb. 9 settle at $61.10/b, while the March NYMEX light sweet crude contract was down 7 cents/b (0.12%) at $58.29/b.

Crude oil prices continued to receive support from strengthening current and future demand as the coronavirus pandemic receded amid vaccine rollouts, with hopes of a swift economic recovery boosted by an impending US stimulus package, analysts said.

"COVID infection numbers continue to fall, raising hope that fuel consumption will improve," ANZ analysts said in a Feb. 10 note, adding that demand recovery was already visible with Chinese fuel sales in significant growth mode and Indian demand returning to pre-pandemic levels as car usage increases.

Furthermore, the American Petroleum Institute's weekly inventory report released late Feb. 9 estimated US crude inventories fell by 3.5 million barrels in the week ended Feb. 5, above the 2.7 million-barrel decline estimated by analysts surveyed by S&P Global Platts, and at a level analysts considered bullish for the market.

The market will look to the US Energy Information Administration's weekly inventory report due later Feb. 10 for further clarity on price direction.

"The reported draw estimate from API was a surprise, and if EIA reports a similar figure later today, it may provide some support to the market," Warren Patterson, head of commodities strategy at ING, told S&P Global Platts Feb. 10.

On the supply side, the OPEC+ alliance's commitment to production quotas and Saudi Arabia's additional 1 million b/d supply curb that kicked in Feb. 1 continue to contribute to a tightening market.

However, concerns that the crude market may have overestimated the improving fundamentals persist, with some analysts perceiving oil to be in overbought territory.

The EIA's short term energy outlook released late Feb. 9 cast a shadow of doubt over the pace of demand recovery, with the expectation of a rise in global consumption of petroleum and liquid fuels by 5.4 million b/d in 2021 revised down 0.2 million b/d from the previous month's forecast.

"The EIA's short-term energy outlook showed the persistent levels of COVID uncertainty continue to weigh on the demand outlook for the rest of the year," said Edward Moya, senior market analyst at OANDA.

Concerns about how long the supply tightness would last were also weighing on optimistic sentiment.

The current strength in oil prices may incentivize OPEC+ to increase production at the March 4 meeting, easing some of the supply tightness in the market, said Stephen Innes, chief global strategist at Axi, in a Feb. 10 note.

Patterson echoed similar sentiment, saying: "The rally [in oil] is running out of steam and further upside is limited as current prices will induce producers in North America to increase drilling activity."