Brent crude oil reaches yearly highs

Brent Crude broke a critical fundamental level of $57 a barrel, a psychological resistance that may see Brent continue to price pre-Coronavirus levels.

Brent Crude Oil Bulls Looking for $58

This is likely on the news that more Americans have received at least one dose of a Coronavirus vaccine than having tested positive for the virus. The United States has been administering vaccines to citizens faster than any other country, with Bloomberg estimating the administration rate at around 1.34 Million doses a day.

Oil Supply Side Providing Headwinds, Complementing Demand Strength

With the demand side of Oil improving exponentially, OPEC has started to increase crude supply by 300,000 barrels to the market in January – showing their confidence in oil prices’ stability now and going forward. However, disruptions and African nations Nigeria and Libya have slightly offset the supply hike, with a leak in a fundamental pipeline in Libya alongside a suspension in deliveries in Nigeria pulling away around 110,000 barrels of supply off the market.

Brent Crude Oil Timespread

With Brent Crudes futures month’s spreads trading at the highest backwardation in a year, alongside Royal Dutch Shell Plc purchasing the most benchmark-grade cargoes in a single day in 10 years, the physical and financial markets are showing supply tightness and demand for the Crude Oil.

Analysts Are Tentatively Positive on Oil Markets

Ole Hansen, head of commodities research at Saxo Bank A/S, stated that currently, the oil market is “supported by the combination of tightening fundamentals, as seen through the rising backwardation and the renewed risk appetite in the U.S stock market.

Other analysts share this perspective, with Bill O’Grady, Executive Vice President at Confluence Investment Management, stating that “the market is going to see supply contract, assuming OPEC doesn’t immediately move to fill the gap.”  Furthermore, Goldman Sachs’ commodity analysts estimate of 500,000 a day restriction on supply has been greatly surpassed, with the average supply deficit ranging at around the 900,000 barrels a day mark.

Oil’s financial price comes from physical pressures

It is important to note that with commodities and other hard asset such as Silver and Gold – the futures market may say one thing. Ultimately, however, it is what happens in the physical market that sets the final price. And in this case, the physical market for Oil is more robust than it was at the peak of the pandemic. Pair that with positive sentiment regarding the vaccine rollouts around the world and a continuation of a supply restriction by OPEC+, and you have a breeding ground for Oil to move higher.