Brent crude tops $50 a barrel for first time since March

Global benchmark crude futures surpassed $50 a barrel for the first time since March as strong demand out of Asia and optimism surrounding vaccine progress lifted the outlook for consumption.

Futures in London rose as much 2.7% to its highest since early March. There are continuing signs of robust demand in Asia with Chinese refiners moving early to buy crude from as far afield as the North Sea. Indian Oil Corp., which has been seeking spot cargoes in recent days, said the nation’s petroleum products consumption is almost back to normal.

Crude surged to a nine-month high as more countries make progress toward rolling out a Covid-19 vaccine. The futures curve has also flipped on its head, trading in a structure known as backwardation that makes it profitable to roll contracts from one month to the next. That is also attracting a rush of new flows to the market.

“Now that we’ve already started the deployment of vaccines in some part of the world, there is optimism about the normalization of the global economy and therefore higher oil prices,” said Bart Melek, the head of global commodity strategy at TD Securities.

Crude’s climb to new highs comes even as supply-side concerns and tightening restrictions to curb the spread of the virus present headwinds. Iran’s plans to ramp up crude sales represent “one of the biggest risks for the oil market next year” if implemented, Commerzbank said in a note. Meanwhile, rising Covid-19 cases around the world have spurred governments to reimpose tougher restrictions.

“The pulse of oil markets remains wedged between the push-and-pull stemming from rising virus cases in the U.S. and Europe,” and potential Covid-19 vaccines, said Ehsan Khoman, head of MENA research at MUFG Bank Ltd.

It’s not just Asia where demand is recovering. There are also some bright spots in Europe as well. The U.K., which emerged from a second lockdown this month, saw road fuel sales jump by almost 10% last week. Fuel use in Brazil has surpassed pre-virus levels. Still, it’s a less certain picture in the U.S., where gasoline consumption has dropped to the lowest since May.

The oil market’s price structure remains healthy. Brent’s nearest timespread is trading in a bullish backwardation—where nearby futures are more expensive than later ones—indicating supply is tightening.