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Crude oil reverses losses as outlook remains bullish

  • Author
  • Andrew Toh
  • Editor
  • Norazlina Jumaat
  • Commodity
  • Electric Power Oil

Crude oil futures were higher in mid-morning trade in Asia Jan. 28, reversing overnight losses, as the outlook remained bullish for oil markets with OPEC producers still struggling to raise output to adequate levels.

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At 10 am Singapore time (0200 GMT), the ICE March Brent futures contract was up 35 cents/b (0.39%) from the previous close at $89.69/b, while the NYMEX March light sweet crude contract rose 44 cents/b (0.5%) at $87.05/b.

Analysts noted that ICE Brent crude remained on track to retake the $90/b marker after failing to settle above that in the last two trading sessions. A structural supply deficit from OPEC producers, as well as recovering global demand as the world moves past the impact from the omicron variant, means crude oil prices only have higher to climb.

"We see the market remaining in deficit in Q1 2022," ANZ Research analysts Daniel Hynes and Soni Kumari said in a Jan. 28 note. "With supply constraints likely to be a feature of the oil market for a while, we see markets pricing in a sizeable risk premium. This should offset headwinds from an Iran nuclear deal and a more hawkish Fed. We have subsequently raised our short-term price target to $95/b."

The forward curve for ICE Brent crude showed a strong call on near-term cargoes, with the prompt intermonth and interquarter spreads having rallied sharply from multi-month lows in December 2021.

The M1-M2 spread for ICE Brent reached $1.24/b as of the Asian close at 4.30pm in Singapore Jan. 27, Platts data showed, a high not seen since Nov. 26, 2021. The Q1-Q2 spread was assessed at $2.80/b during the same period, a high not seen since Nov. 10.

Investors will be looking towards the next OPEC+ meeting on Feb. 2 for the group's decision on production and output levels for March. The group is expected to maintain its gradual unwinding of production cuts and proceed with its planned 400,000 b/d output hike.

"The political pressure is growing for OPEC+ to deliver more barrels of crude, but they will likely stick to the expected increase of 400,000 b/d for March. With some OPEC+ members struggling to reach their quotas, any oil weakness should be limited," OANDA's senior market analyst Edward Moya said in a Jan. 28 note.