Crude oil futures rally from 10-day lows as sentiment recovers

Crude oil futures were higher in midmorning trade in Asia Nov. 16, rallying from 10-day lows as investor sentiment recovers and the near-term outlook for prices remained bullish.

At 10:43 am Singapore time (0243 GMT), the ICE January Brent futures contract was up 75 cents/b (0.91%) from the previous close at $82.80/b, while the NYMEX December light sweet crude contract rose 58 cents/b (0.72%) to $81.46/b.

A few bruising sessions had pushed oil prices to lows not seen since Nov. 5, though analysts maintained that the outlook for prices remained bullish as demand continues to outstrip supply.

"An undersupplied backdrop is keeping oil on a strong footing. OPEC+ has decided against raising the rate of production increases, and US shale production is yet to pick up," said ANZ Research analysts Soni Kumari and Daniel Hynes in a note.

The daily charts for both front-month contracts showed oil prices printing a hammer formation in the last trading session, indicating a potential reversal in price direction. Oil prices in recent days have pared steep intra-day losses to close near their opening levels as buyer support rushed in despite a recent spate of bearish headlines.

CEO of Western trading house Vitol Russell Hardy said Nov. 15 that global oil market fundamentals will likely remain tight over the coming year as oil demand continues to build after having mostly fully recovered to 2019 pre-pandemic levels.

Oil demand for industrial usage has already exceeded 2019 levels while jet fuel demand for aviation continues to lag pre-pandemic levels, meaning global oil demand is "pretty much caught up with 2019," Hardy said at a conference in Abu Dhabi.

Nonetheless, analysts cautioned that risks to the near-term outlook for prices remained. Europe was now battling its fourth wave of COVID-19 infections, while oil consuming giant China is also tackling a fresh outbreak though daily caseloads appeared to be falling. The country's National Health Commission reported 32 locally transmitted cases as of Nov. 14, down by 38 on the day.

In addition, the US Energy Information Administration in its most recent Drilling Productivity Report released Nov. 15 said that US shale oil production will rise by 85,000 b/d on the month to average 8.31 million b/d in December, with most of the gains to come from the Permian Basin.

"The EIA forecasted Permian oil output to hit a record high next month. Other regions are still nowhere near pre-pandemic levels, so this increase from the Permian will offer little relief to elevated oil prices," said OANDA senior market analyst Edward Moya.

ING analysts Warren Patterson and Wenyu Yao said oil prices will likely continue to tread water as the market awaits fresh developments from the US.

"OPEC+ has made it clear that the group will stick to its cautious approach of gradually increasing supply. Consequently, the market is waiting for any developments from the US administration that may ease prices," Patterson and Yao said.