Oil Prices Rise, But Bulls Running on Fumes

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Oil futures rose on Wednesday, but the market remained relatively subdued after the Opec-plus coalition decided to reaffirm its plan to gradually increase production (IOD Apr.27'21). “Unlike previous gatherings this year, the [Opec-plus] group failed to deliver any surprises,” said PVM analyst Stephen Brennock. In London, the June Brent contract gained 85¢ and settled at at $67.27 per barrel, rebounding more than $1 above its intraday low of $66.13/bbl. In New York, the front-month Nymex WTI June contract was up 92¢ and closed at $63.86/bbl, also well above its intraday low of $62.67/bbl. Soft Spots Despite the optimism of financial markets, lofty equity valuations and significant economic stimulus measures, oil investors seem to be running out of good news to fuel more bullishness. After pricing in a gangbusters economic recovery, the oil market has tightened its expectations in response to the severe resurgence of Covid-19 infections in India and Japan, both of which are large buyers of crude oil (IOD Apr.27'21). As a result, some soft patches remain in the physical market, even if spot buying is only marginally affecting the flat price. Speculation lingers, however, and reflation trade remains the dominant narrative as economic growth prospects brighten. Oil prices, however, are not yet showing the tightness that is expected in the second half of the year. For that to happen, crude stocks must draw further and spread scarcity to the physical market to sustain backwardation. “Commodities must price to equate the physical volume demand and supply in the market today -- they cannot be forward-looking like equities,” Goldman Sachs wrote in a note. At the moment, the current market backwardation is only anticipating future scarcity. Higher prompt prices help pull physical surplus out of inventories, pushing the market back to where it started. Taking a Trip

Oil Inventories, Crude Oil
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