Oil price surges on signs of a tight global crude market

(Bloomberg) - Oil soared toward $55 a barrel in New York, touching its highest level in a year as the virus-recovery rally continued.

West Texas Intermediate futures rose 2.4%, while the global Brent benchmark came back within sight of $60. Gains in broader markets spurred crude, while a weaker U.S. dollar also buoyed commodities priced in the currency. Oil has risen steadily since late last year as coronavirus vaccines and supply curbs from OPEC and its allies spur hopes that global stockpiles will continue to slide.

There are pockets of physical-market strength, too. Royal Dutch Shell Plc raided the North Sea market Monday, buying the most benchmark-grade cargoes in a single day in 10 years in the S&P Global Platts pricing window. The oil major also bid for a further seven shipments in a flurry of activity.

Alongside that move, the structure of the futures curve has been firming, adding to the bullish outlook. Nearby Brent timespreads are trading in their biggest backwardation in a year, suggesting supply tightness.

Oil still faces bumpy short-term demand amid concern that new virus variants will lead to more lockdowns, while vaccine rollouts are slower than expected in some countries. Still, with cold weather sweeping across the U.S. and much of Wall Street anticipating inventory draws in the coming months, prices continue to surge higher.

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,” said Ole Hansen, head of commodities research at Saxo Bank A/S.

Prices:

• WTI for March delivery advanced 2.4% to $54.81 a barrel as of 10:38 a.m. London time
• Brent for April settlement rose 2.3% to $57.64

OPEC may be adding less supply to the market than expected. While the group raised crude production as planned in January, the monthly change was barely two-thirds of the scheduled amount as increases by OPEC’s Persian Gulf exporters were offset by disruptions in Nigeria and Libya.

Other oil-market news:

• BP Plc offered more evidence that Big Oil has barely begun to heal the wounds from last year’s slump, posting earnings that missed expectations mainly due to weak fuel sales and refining margins.
• In the U.S., cold weather is forecast to drop several inches of snow on New York, with the season’s heaviest barrage so far. Heating-oil margins rose to their highest level since April on Monday.
• China National Offshore Oil Corp. said the nation’s lofty climate goals won’t interrupt its program to raise oil and gas output.
• OPEC and its allies can celebrate their success in steadying world oil markets when they gather this week. But the coalition will soon be faced with some tough choices.