By Geoffrey Smith
Investing.com -- Crude oil prices closed in on the $60 a barrel mark for the first time in nearly a year on Friday, but were unable to break that level after a rally that has prices looking overbought in the short-term.
By 11:15 AM ET (1615 GMT), Brent crude futures were up 1.0% at $59.56 a barrel, having earlier traded as high at $59.78. U.S. crude futures, which typically trade at a small discount to Brent, were up 1.4% at $57.03 a barrel.
U.S. gasoline RBOB futures meanwhile were up 0.5% at $1.6595 a gallon, their highest since mid-February last year, when world oil demand began to collapse under the weight of the Covid-19 pandemic.
The market has been cheered this week by the way OPEC’s monthly meeting on output policy played out, with no extra output agreed and plenty of evidence of output quotas being observed. Nigerian output in particular has now fallen to a level that almost compensates entirely for its overproduction last summer, partly due to disruptions at some of its export facilities. In addition, another week of clear drawdowns in U.S. and international inventories has convinced many that the market is set to tighten meaningfully as demand picks up in the course of the year, pushing back-month futures contracts sharply higher.
“The market is increasingly pricing in a belief that last year’s price crash together with an increased investor focus on environmental, social and corporate governance (ESG) could led to a future shortfall due to lack of investments towards exploration,” Saxo Bank head of commodity strategy Ole Hansen said in a morning note. “However, before we reach that stage, global demand needs to recover from the current 94 million barrels/day and back towards 100 million seen a year ago, while OPEC+ slowly returns 7 million barrels/day of still capped production.”
Others, too, warned that the market may have come too far, too fast.
“Continuous storage draws is what bullish traders love to see, after a year of monstrous inventory builds, so once the trend is constant the market sees little reason to stop the price hype,” said Rystad Energy’s head of oil markets research, Bjornar Tonhaugen, in emailed comments. “Many technical indicators are flashing red, so a price correction soon would not be unsurprising,”
One possible source of a bearish shock is Iran, which is not covered by the OPEC agreement on output restraint. Axios reported earlier Friday that President Joe Biden is in a hurry to return to the UN-sponsored agreement under which Iran stopped enriching uranium in 2015.
Biden suspended aide to Saudi Arabia this week as regards the prosecution of its campaign in Iranian-backed Houthi rebels in Yemen.
However, the U.S. move to seize an Iranian oil tanker this week on suspicion of sanctions-busting suggests that the new administration won’t be too quick to ease the pressure on its oil exports.