Oil erased earlier gains, but remained above $60 a barrel in London, on signs that a recent rally in headline prices could be overdone.
Traders offered six cargoes in a North Sea pricing window on Monday, compared with a bumper buying spree earlier this month a sign some physical market strength may be easing. Brent’s relative strength index is in the most-overbought territory since 2012, another sign of a stretched market.
Those warning signs are being weighed against more optimistic takes. Oil trader Trafigura Group talked up the prospect of a bull market in mid-year as demand recovers from the pandemic and stockpiles drain. U.S. crude inventories last week dropped for an eighth time in the last nine weeks, according to a Bloomberg survey.
Oil’s surge since the end of October has been underpinned by COVID-19 vaccine breakthroughs and Saudi Arabia’s pledge to deepen production cuts. Slowing virus infections across the globe are raising optimism fuel consumption will continue to climb, while cold weather is pushing demand higher. There are, however, some concerns that higher prices will start to attract renewed supplies to the market, curbing further rallies.
“A reversal may be on the horizon,” said Kevin Solmon an analyst at brokerage StoneX Group. “The rapid ascent in oil prices may entice oil producers to place hedges, which could consequently place some downward pressure on prices.”
- Brent for April fell 0.1 per cent to $60.64 as of 12:17 p.m. London time
- WTI for March delivery gained 2 cents to $57.98 a barrel
While Trafigura has an optimistic outlook for the market, not all traders are in agreement. Vitol SA and Gunvor Group Ltd. have said prices may be rising too quickly, and the market may be getting ahead of itself before the impact of vaccines can be seen on demand.
© 2021 Bloomberg L.P.