Oil prices made their biggest weekly gain this year, reaching pre-pandemic levels at a one-year high. The price of Brent crude is about to breach the important psychological mark of $60, closing the week at $59.34 per barrel. The price of West Texas Intermediate (WTI) crude closed the week at $56.85 per barrel.
The declining crude oil inventories in the world’s two largest oil consuming nations and largest economies, the US and China, have led to an outlook of a tightening market.
China’s crude oil stocks fell to their lowest level in nearly a year amid a global drawdown in inventories that is being driven by tighter supply strategies from OPEC+, which has read the market very well.
Prices have reached a year high — the market never imagined that the price of WTI would breach $55 per barrel after going below zero 9 months ago or that Brent crude would reach nearly $60 per barrel after touching $16 per barrel. The credit goes to the successful market management of OPEC and its leadership role in implementing medium-term strategies to balance the market while maintaining the principle of global energy security.
Tighter supplies from OPEC+ have successfully turned the Brent future curve to backwardation, which encourages oil traders to take oil out of storage, signaling a stronger market.
In January this year, OPEC+ achieved high compliance in maintaining oil output cuts; an upward momentum in oil prices did not alter its output cuts of 7.2 million barrels per day (bpd).
The price surge is due to OPEC’s effective market leadership despite the fragile market and uncertain oil demand recovery.
Also, the outlook for a tightening physical crude market amid continuing stock draws, helped by colder weather, has led crude’s futures curve to further strengthening, offsetting the challenging short-term demand recovery amid concern that the new virus variants will lead to more lockdowns and that some countries are facing vaccine rollouts issues.
