Oil’s rally gathers momentum as Brent pops above $95 a barrel
Oil surged to a 10-month high — extending a powerful rally that may rekindle inflation — as supply cuts from OPEC+ tightened the market, with Saudi Arabia’s energy minister shying away from any change in course.
Global benchmark Brent topped $95 a barrel for the first time since November, advancing for a fourth day after Saudi Arabia and Russia curtailed production. The tighter market has ignited a flurry of predictions that $100 oil could soon return in a roster than runs from industry heavyweights such as Chevron Corp. Chief Executive Officer Mike Wirth to traditional bears at Citigroup.
The latest upswing has been marked by significant moves in timespreads, one of the market’s mosty-keenly tracked metrics. Brent’s three-month spread has ballooned to more than $4 a barrel in backwardation, a bullish pattern. That compares with a differential of $1.26 a barrel about a month ago.
Crude has soared by about a third since mid-June as Riyadh and Moscow joined hands to curtail exports in a bid to drain inventories and drive a rebound in prices. An improving outlook in the world’s two biggest economies — the US and China — has also supported the advance. Oil’s relentless surge has been one of the standout features of commodity markets over the third quarter.
“Risks of a short-term spike to $100 may be rising with the current momentum but we have little conviction it would be sustainable,” said Charu Chanana, market strategist at Saxo Capital Markets Pte. “Higher inflation could mean tighter monetary policies and OPEC+ can’t control the demand side.”
On Monday, Saudi Arabia Energy Minister Prince Abdulaziz bin Salman told a conference in Canada that the Organization of Petroleum Exporting Countries was working to keep markets stable and improve energy security, without targeting a specific price. Output plans will be reviewed every month, he said.
The surge in energy costs looks set to boost inflationary pressures, complicating the task facing leading central bankers, many of whom have just presided over a punishing string of rate increases aimed at subduing price gains. It’ll be a big week for monetary-policy decisions, with a slew of meetings, including one at the Federal Reserve.
The jump in oil also poses a challenge for the Biden administration ahead of presidential elections, with costlier crude feeding into more expensive gasoline, a key issue for some US voters. Average retail prices of the key motor fuel are already at a seasonal record.
Still, there are plenty of signs that the rapid rally could be overdone in the short term, with crude’s 14-day relative strength index hitting the highest level since March last year. It’s been above 70 — a level indicating futures may be overbought — for most of the prior two weeks.
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Source: moneyweb.co.za
