This is the first weekly energy recap for 2021, and oil prices are on an upward momentum.
The Brent crude oil price has surpassed $55 per barrel for the first time since February 2020 and closed the week nearly at $56 per barrel.
West Texas Intermediate (WTI) crude futures have unexpectedly breached the $50 barrier for the first time since early 2020 and have closed the week at $52.24 per barrel despite the relatively unchanged market fundamentals.
The bullishness in the market that drove oil prices higher came amid the prospects for a deeper fiscal stimulus in the US, vaccine optimism and a weaker US dollar.
The US Energy Information Administration’s (EIA) large bullish draw to crude oil inventories by the end of 2020 and the bullish outcome from the OPEC+ first meeting in 2021 also contributed to the price increase.
The global stock rallies and gains in the US index futures likewise must have pushed the prices higher.
It is obvious that oil prices moved up, building on recent strong gains in stock markets with the three major US indexes pushing into record territory.
Clearly, stock market traders were unfazed by the chaos on Capitol Hill.
Oil prices have risen despite the new lockdowns in Europe that further delayed the prospects for demand recovery.
The outlook for colder-than-normal weather for Europe and the northern hemisphere should be supporting higher demand for heating oil as people turn up the heat during the lockdown. However, this factor is yet to clearly materialize on the petroleum refining margins.
Although the year 2021 started with expectations for low oil prices, these hopes might be dashed as the prices have started to rise unexpectedly.
The most bullish outlook for oil price was for Brent crude prices to hit the $60-per-barrel barrier in the second quarter of 2021.
A sharp recovery in oil demand before the end of the first half of 2021 is driven by expectations of vaccine rollouts.
However, the EIA predicted Brent and WTI to average $48.53 and $45.78, respectively, in 2021. The EIA’s oil price outlook seems to be extremely bearish.
Speculators’ activities in the coming weeks will contribute to the near-term movement in oil prices.The recovery from the pandemic will accelerate once vaccines become widely available.
Until then, speculators might be completely wrong-footed with an unexpected oil price momentum despite bearish fundamentals.
At the same time, the vaccination drive and the economic stimulus will set the tone for oil demand recovery in 2021 with the year 2020 ending on a bullish note after a rollercoaster ride caused by the global coronavirus disease (COVID-19) pandemic.
The latest figures from the Commodity Futures Trading Commission (CFTC) for the first week of 2021 shows that crude futures’ “long positions” on the New York Mercantile Exchange (NYMEX) are at 678,712 contracts, rising by +24,677 contracts from the previous week (1,000 barrels for each contract).