SINGAPORE- Oil prices edged up on Tuesday to their highest in 13 months as supply cuts by major producers and optimism over fuel demand recovery support energy markets.
Brent crude futures for April gained 29 cents, or 0.5 percent, to $60.85 a barrel. US West Texas Intermediate crude (WTI) for March was at $58.25 a barrel, up 28 cents, or 0.5 percent.
Both Brent and WTI are at their highest since January 2020. Frontmonth prices for both contracts are up for the seventh session on Tuesday, the longest win streak since January 2019.
Additional supply reductions by top exporter Saudi Arabia in February and March, on top of cuts by producers in the Organization of the Petroleum Exporting Countries and their allies, are tightening supplies and balancing global markets.
Investors are also pinning hopes on oil demand recovery when COVID-19 vaccines take effect. A weak dollar has also helped shored up prices of commodities.
“Progress on US stimulus and optimism around the roll-out and effect of vaccines across the remainder of 2021 and a slightly weaker USD help the view (for a recovery) albeit there was mixed news on the impact of the current vaccines formulated on the emerging South African variant,” Stephen Innes, chief global markets strategist at brokerage Axi.
He cautioned, however, that both Brent and WTI are in overbought territory on technical charts.
“While I remain a bit cautious at current levels, the medium and longerterm outlook for demand is healthy, and one can understand a willingness to look through some of the nearterm uncertainty that remains for oil,” he said.
Meanwhile, Hedge funds have increased their exposure to diesel and moved away from gasoline amid fears the lingering epidemic and slow vaccination programs will depress personal travel and the services sector for many more months.
Hedge funds and other money managers purchased the equivalent of 8 million barrels in the six most important petroleum futures and options contracts in the week to Feb. 2.
But the rate of buying was the slowest for five weeks and before that the beginning of November, when the first successful vaccine trials were announced
Until recently, fund managers had been more bullish on gasoline than on any other element of the petroleum market.
Funds’ gasoline long positions outnumbered shorts by a ratio of more than 9:1 at the start of the year on expectations a rapid deployment of vaccines would lead to a resumption of personal travel and retail services.
Since then, it has become clear vaccination programs are progressing slowly in many countries, which will delay the resumption of normal travel activity.