(Bloomberg) — Oil opened the week in robust form after a raft of economic data from China added to signs of recovery from the coronavirus pandemic just as the OPEC+ alliance presses on with output curbs to drain global inventories.
West Texas Intermediate in New York gained 0.6%, while Brent also climbed. Figures from China for the first two months of the year showed a surge in industrial output and retail sales, underscoring the strength of its V-shaped recovery and reinforcing expectations for increased energy demand.
Crude has rallied strongly in the opening months of 2021, supported by the vaccine-aided recovery from the pandemic and the decision by the Organization of Petroleum Exporting Countries and its allies to keep a tight rein on supplies. That combination — plus attacks on Saudi Arabian oil infrastructure by Yemen’s Houthi rebels — helped London’s Brent crude to top $71 a barrel last week.
“Once again, a much-improved demand picture along with supply cuts, particularly from OPEC+, have us drifting higher,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific. “I expect, if anything, we are going to see higher levels.”
Reflecting optimism about the scope for further gains, Citigroup Inc. raised its full-year Brent forecast by $5 a barrel to $69, citing the OPEC+ curbs and inventory draws. The bank warned a spike to $80 was possible.
Among the welter of figures from China, apparent oil demand rose almost 17% in January-February from a year earlier, to 13.326 million barrels a day, according to data compiled by Bloomberg. That snapshot takes into account domestic oil-processing volume, and the net import of refined petroleum.
More Chinese are taking to the skies, too, in a boost for jet fuel. Air-passenger volume rose to 23.9 million trips in February, according to the local civil aviation administration. That’s approaching three times year-earlier levels.
There have also been positive signs from the U.S., with the weekly Covid-19 death toll declining to a four-month low and new infections dropping. That’s boosting the outlook for oil consumption in the world’s largest economy.
The OPEC+ alliance is wagering its tighter-for-longer policy on supply curbs will buttress higher prices without provoking a resurgence in U.S. shale output. On Friday, Baker Hughes Co. data showed the U.S. rig count little changed.
At the same time, WTI’s prompt timespread was holding at 3 cents a barrel in contango, a bearish pattern where near-term prices are cheaper than those further out. A week ago, the front-month contract was backwardated.
The shift follows a further build in U.S. crude inventories last week, with several Gulf Coast refineries still trying to return to service after getting shuttered during the cold snap in February.
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