Brent Hits $70/b on 'Bullish Cocktail': Rystad

Dated Brent crude oil surged above $70/barrel on March 8, thanks to further gains from Opec+'s decision last week to extend production cuts, the US Senate's passing of a $1.9-trillion stimulus bill and drone attacks near Saudi oil infrastructure.

The benchmark peaked at $71.4/b in early trading, up from the previous close of $69.36/b, while West Texas Intermediate (WTI) peaked at $67.96/b, from a previous close of $66.09/b. As of time of publish, Brent is trading at $68.84/b and WTI $65.65/b.

Opec+ agreed unexpectedly on March 5 to stick with the current supply quotas for April, despite a recovery in prices in recent months. The US Senate also passed its $1.9-trillion coronavirus relief package on March 6, with the House expected to approve the bill on March 9. Drone strikes at Saudi oil facilities over the weekend were also a factor, even though production does not appear to have been affected.

Norwegian consultancy Rystad Energy said the oil market enjoyed "a perfect cocktail of bullish news."

"On the balances front, gains are still fuelled by last week’s Opec+ meeting excitement. The alliance’s agreement to roll-over the existing production cuts was far more conservative than the market expected and traders are still pricing in the stock draws that will follow in coming months," Rystad oil markets analyst Louise Dickson said. "We do not expect the price fever to cool down, in the short-term."

The Opec+ decision to hold back supply for longer "will yield an extraordinarily tight oil market with stock draws perhaps accelerating towards 1.3mn b/d in April, and even deeper beyond 2.5mn b/d if supply restraint spills into May," Dickson said. If vaccine campaigns accelerate and oil demand recovers from summer onwards, healthy prices can be maintained even if Opec+ eventually brings back some output."

Unlike after the previous oil market recovery, it will take considerable time for the US shale oil industry to ramp up supply in response to rising prices, the analyst continued. Rystad expects US oil production to take until the end of 2023 to return to the pre-pandemic level of 12.8mn b/d.