Oil opened the week in robust shape after a string of economic data from China contributed to signs of recovery from the coronavirus pandemic as the OPEC + alliance continued production restrictions to deplete global stocks.
West Texas Intermediate in New York was up 1 percent, while Brent was also up. Figures from China for the first two months of the year showed an increase in industrial production and retail sales, underscoring the strength of the V-shaped recovery and increasing expectations for increased energy demand.
Crude oil bounced back sharply in the early months of 2021, aided by the vaccine-supported recovery from the pandemic and the decision by the Organization of Petroleum Exporting Countries (OPEC) and its allies to keep supplies under control. That combination – plus a surge in attacks by Houthi rebels on Saudi oil infrastructure – helped London crude Brent peak last week at $ 71 a barrel.
“A significantly improved demand picture and supply cuts, especially as a result of OPEC +, have pushed us up again,” said Michael McCarthy, Chief Market Strategist at CMC Markets Asia Pacific. Much data this week, including China, could provide primary evidence of the recovery, McCarthy said. “I assume that we will see higher levels, if at all.”
China’s apparent oil demand rose nearly 17 percent year over year to 13.326 million barrels a day from January to February, according to Bloomberg data. This snapshot takes into account domestic oil processing volumes and net imports of refined petroleum.
China is the only major economy exiting the pandemic after early control of the virus. The economy grew 2.3 percent in 2020, and economists are forecasting 8.4 percent growth this year. The government has targeted a more modest expansion of “over 6 percent” for 2021.
There were also positive signs from the US: the weekly Covid-19 death toll fell to a four-month low and the number of new infections fell. This increases the prospects for oil consumption in the world’s largest economy.
The OPEC + alliance is betting that its tighter policy on supply restrictions will support higher prices without provoking a revival in US slate production. On Friday, data from Baker Hughes Co. showed that the number of U.S. oil rigs has barely changed.
At the same time, WTI’s quick span of time flashes with a warning of 3 cents in contango, a bearish pattern where short-term prices are cheaper than those further away. The front month contract was canceled a week ago.