Oil prices build on gains

3 June, 2021 12:00 AM printer

HONG KONG: Oil prices extended their rally Wednesday on growing expectations for demand as the global economy recovers, though equity investors trod a more cautious line with inflation fears still casting a shadow over trading floors.

While some countries are struggling in their battle with the coronavirus, the general mood among dealers is upbeat with the global economy rebounding sufficiently strongly as vaccines are rolled out and parts of the planet slowly return to a semblance of normality, reports AFP.

And one of the biggest beneficiaries of that is the crude market, with demand for the commodity picking up as people begin travelling again and factories restart.

Both main contracts have rocketed from the dark days of last April—when they crashed in reaction to the imposition of lockdowns around the world—helped by top producers slashing output.

But with the world recovery now on track, the 23 oil-rich nations of the so-called OPEC+ group are confident that demand will increase enough for them to open the taps further.

On Tuesday, the group agreed to continue lifting output in July, having started slowly doing so in early May.

“The demand picture has shown clear signs of improvement,” said Saudi Energy Minister Prince Abdulaziz bin Salman.

Russian Deputy Prime Minister Alexander Novak said: “We see that demand has increased, that prices have stabilised,” and spoke of a “normalisation” of the global economy.

That came after the International Energy Agency said the second half of the year could see a gap between demand and supplies, which could push prices even higher.

However, the group gave little away about plans for August and its views on the possibility of Iranian oil coming back to the market if Tehran seals a nuclear deal with world powers that will lift sanctions on the country.

WTI on Tuesday rose to $68.87 -- its highest level since October 2018 -- while Brent peaked at $71.34, before they pared gains. They continued to be supported in Asian trade Wednesday, rising from their closing prices, and observers suggest they could break higher.

The bump in oil has given a fillip to energy firms, though broader markets in Asia struggled to build on recent gains.

Tokyo, Sydney, Seoul, Taipei and Jakarta all rose, with Manila surging more than three percent on reports the government plans to ease some containment measures.

But Hong Kong, Shanghai, Singapore, Mumbai, Bangkok and Wellington dipped.

London, Paris and Frankfurt were all up slightly in the morning.

The mixed performance followed a tepid lead from Wall Street, with analysts saying a slow rebound in US employment take-up dampened spirits.

While companies are reopening and rehiring, observers pointed out that many people were yet to return owing to various factors including lingering virus concerns and government handouts as part of US President Joe Biden’s stimulus package passed earlier this year.

“No one is abandoning the US growth exceptionalism trade, but optimism for a swift labour market recovery is fading and might complicate Wall Street’s assessment of the US consumer,” said OANDA’s Edward Moya.

Investors will therefore be keeping a close eye on the release of May jobs creation data this week, having been massively disappointed by April’s reading.

A forecast-busting reading could also weigh on market sentiment as it would add to long-running worries that the strong economic rebound will fire price rises and force the Federal Reserve to wind back its ultra-loose monetary policy.