Oil climbs within sight of $60 with global supplies tightening

Oil rose toward $60 a barrel in London as supplies continue to tighten while the demand outlook improves with the roll-out of coronavirus vaccines.

Futures in London climbed for a sixth day, also aided by a weaker dollar, as they close in on a level last reached in February 2020, before Covid-19 upended global energy markets. The Organization of Petroleum Exporting Countries and its allies have pledged to keep draining a virus-driven surplus as inventories from China to the U.S. shrink.

The recent rally comes on the back of a surge in interest in commodities, with investors looking to profit from an expected recovery in the global economy. Holdings of West Texas Intermediate futures have surged to their highest since 2018.

Expectations for stronger oil demand are also buoying prices, with more people getting the Covid-19 vaccines. But there are also reasons to be cautious. Oil at $60 a barrel will bring back more production and keep any further gains in check, according to top trading firm Gunvor Group Ltd.

“Besides soft factors such as increased demand from investors in view of the pronounced price buoyancy, rising stock markets and economic optimism, the physical market is also looking increasingly tight,” said Eugen Weinberg, head of commodities research at Commerzbank AG.

Average WTI prices for the rest of the year are at $55 a barrel, while for next year they’re above $50, levels that could spur renewed production.

For now though, there are signs of ongoing strength as Saudi Aramco left its oil prices unchanged for Asia in March, defying expectations of a cut. It also hiked pricing to Europe and the U.S.