Oil opened the week in robust form after a raft of economic data from China added to signs of recovery from the coronavirus pandemic just as the OPEC+ alliance presses on with output curbs to drain global inventories.
West Texas Intermediate in New York gained 1 per cent, while Brent also climbed. Figures from China for the first two months of the year showed a surge in industrial output and retail sales, underscoring the strength of its V-shaped recovery and reinforcing expectations for increased energy demand.
Crude has rallied strongly in the opening months of 2021, supported by the vaccine-aided recovery from the pandemic and the decision by the Organization of Petroleum Exporting Countries (OPEC) and its allies to keep a tight rein on supplies. That combination -- plus an uptick in attacks on Saudi oil infrastructure by Houthi rebels -- helped London’s Brent crude to top $71 a barrel last week.
“Once again, a much-improved demand picture along with supply cuts, particularly from OPEC+, have us drifting higher,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific. Lots of data this week, including China’s, may yield primary evidence of the recovery, according to McCarthy. “I expect, if anything, we are going to see higher levels.”
Among the welter of figures, China’s apparent oil demand rose almost 17 per cent in January-February from a year earlier, to 13.326 million barrels a day, according to data compiled by Bloomberg. That snapshot takes into account domestic oil processing volume, and the net import of refined petroleum.
China is the only major economy to power out of the pandemic after an early control over the virus. Its economy grew 2.3 per cent in 2020, and it is forecast by economists to expand 8.4 per cent this year. The government has targeted a more modest expansion of “above 6 per cent” for 2021.
There have also been positive signs from the US, with the weekly Covid-19 death toll declining to a four-month low and new infections dropping. That’s boosting the outlook for oil consumption in the world’s largest economy.
The OPEC+ alliance is wagering its tighter-for-longer policy on supply curbs will buttress higher prices without provoking a resurgence in U.S. shale output. On Friday, Baker Hughes Co. data showed the U.S. rig count little changed.
At the same time, WTI’s prompt timespread is flashing a warning, holding at 3 cents in contango, a bearish pattern where near-term prices are cheaper than those further out. A week ago, the front-month contract was backwardated.