Brent oil climbed to near $55 a barrel as Saudi Arabia’s unilateral output cut eased over-supply fears and a Democratic sweep in the U.S. paved the way for more stimulus spending.
Futures in London climbed 0.6% on Friday and are up around 6% for the week. Democratic wins in elections in Georgia mean the party is poised to take control of the Senate, House and presidency, spurring a broad move higher in financial markets. That came after Saudi Arabia pledged earlier in the week to cut production by 1 million barrels a day in February and March.
The spreading coronavirus remains a near-term cap to further gains, however. Accelerating cases across Europe prompted a call from the World Health Organization for stricter measures across the continent, while the U.K.’s latest restrictions are already compounding a plunge in fuel sales. China has locked down a city of 11 million near Beijing to contain an outbreak.
Crude has surged more than 40% since the end of October thanks to a series of vaccine breakthroughs, even as the virus led to more lockdowns. A weakening dollar has also helped boost the appeal of raw materials like oil that are priced in the currency. Annual commodity index rebalancing may provide another tailwind when it gets underway on Friday, with as much as $9 billion of oil contracts possibly being bought over the five days of activity that start Friday, according to Citigroup Inc.
“The past ten weeks of trading have seen only one weekly decline, which was comparatively small,” said Carsten Fritsch an analyst at Commerzbank AG. “This is testimony to the strength of the oil market in the last two-and-a-half months.”
- Brent for March settlement added 0.6% to $54.74 a barrel as of 10:01 in London
- West Texas Intermediate for February delivery rose 0.6% to $51.14
Though demand in some countries is coming under pressure from coronavirus, there are also bright spots. Beijing’s coldest weather since 1966 is spurring local energy prices higher. Temperatures across much of Europe and Asia are below normal and expected to stay there for most of January.
Saudi Arabia’s surprise output cut appears to have caught some Asian buyers by surprise. On Thursday, Unipec, the trading arm of China’s largest refiner, bought four cargoes of North Sea crude in a pricing window run by S&P Global Platts that saw its most activity in at least 12 years.
The recent surge in prices has pushed Brent’s 14-day relative strength index above 70, a technical signal that a reversal could be coming. WTI’s 14-day RSI is also in overbought territory.
Other oil-market news:
- Brazil’s Petrobras wrapped up 2020 with record oil production just as most of its peers reeled from the worst crude-market crash in history.
- U.S. retail gasoline prices are at their highest since the pandemic drove widespread lockdowns last March, according to auto club AAA.
- Pioneer Natural Resources Co., one of the top producers in America’s shale patch, doesn’t see drilling picking up significantly even after this week’s surprise Saudi pledge to curb production sent prices surging.