Oil hovers below $50/bbl on hopes for US stimulus

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    NEW YORK – Brent crude oil futures rose more than 1 percent remaining just under $50 a barrel, as expectations of a US economic stimulus package and the possibility of a vaccine for the coronavirus overrode rising supply and increased COVID-19 deaths.

    A bipartisan $908 billion coronavirus aid plan gained momentum in the U.S. Congress.

    Brent settled up 54 cents or 1.11 percent at $49.25 a barrel. During the session, the contract hit its highest since early March at $49.92.

    West Texas Intermediate rose 62 cents to $46.26 a barrel, after touching a high of $46.68 a barrel.

    Both benchmarks gained for a fifth consecutive week, with Brent up 1.7 percent and US crude up 1.9 percent.

    “We’re higher, despite super bearish events – it’s all about stimulus,” said Bob Yawger, director of energy futures at Mizuho in New York. “You can’t go home short this weekend because they could sign a deal this weekend.”

    OPEC+, comprising of the Organization of the Petroleum Exporting Countries and its allies, on Thursday agreed on a compromise to increase output slightly from January but continue the bulk of existing supply curbs to cope with coronavirus-hit demand.

    OPEC and Russia agreed to ease deep oil output cuts from January by 500,000 barrels per day with further as yet undefined increases on a monthly basis, failing to reach a compromise on a broader policy for the rest of 2021.

    OPEC+ had been expected to continue existing cuts until at least March, after backing down from plans to raise output by 2 million bpd.

    The increase means the group will reduce production by 7.2 million bpd, or 7 percent of global demand from January, compared with current cuts of 7.7 million bpd.

    While some analysts saw an undersupplied oil market even under the new higher supply quotas, others expected the barrels would tip the market into oversupply.

    Wood Mackenzie analysts, for example, expect that if the increases continue through March, there might be 1.6 million bpd unwanted in the first quarter.

    The premium of Brent crude futures for nearby delivery to future months is at its highest since February, a structure called backwardation, which usually points to supplies tightening up and suggests receding fears of a current glut.

    Brent crude futures for nearby delivery flipped into backwardation on Nov. 24 before returning to contango, its opposite structure, and then recovering to a high of 50 cents as the OPEC+ pact was agreed on Thursday.

    A backwardated market structure means the current value is higher than it will be in later months and encourages traders to release oil from storage.

    The structure also encourages financial investors to hold large positions in oil futures because it makes it cheaper to roll over monthly contracts. Front-month futures shot up to 9-month highs near $50 on Friday.

    “OPEC+ will continue to restrain supply of oil to the market at a level where global crude oil inventories will continue down,” said SEB chief commodity analyst Bjarne Schieldrop “This will drive spot prices higher.”

    US production, meanwhile, has recovered from the two-anda-half-year lows touched in May mainly because shale producers have brought wells back online in response to rising prices.

    The US oil rig count rose five to 246, its highest since May, energy services firm Baker Hughes Co said.