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Oil Price

Tighter Oil Markets Send Oil Prices Higher

Oil prices rose early on Monday, supported by a risk-on sentiment on the equity markets and expectations that the oil production curbs by OPEC+ and its leader Saudi Arabia would tighten the market in the first quarter.

As of 10:05 a.m. ET on Monday, WTI Crude was up 0.63 percent at $52.45 and the international benchmark, Brent Crude, was rising by 0.80 percent at $55.48.

After gaining around 8 percent in January, oil prices began the month of February with gains, too, buoyed by Saudi Arabia’s commitment to reduce its crude oil production by an additional 1 million barrels per day (bpd) beyond its quota in the OPEC+ pact.

The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite Index all rose at market open on Monday, with the equity markets trying to recoup some of the losses from Friday. The risk-on sentiment was spilling onto oil on Monday, despite some mixed economic data.

In China, the purchasing managers’ index (PMI) showed that the Chinese economy continued its recovery in January, but at a slower pace, because of the virus-related lockdowns in some cities to fight the biggest resurgence of COVID-19 cases since the summer of 2020. 

Despite the coronavirus and the slower vaccine rollout and vaccinations than initially expected, the oil market chose to focus at the start of February on the expected tighter market in the coming months.

The futures curve of the Brent contract showed further signs on Monday that market participants expect the tighter market to help a faster drawdown of inventories.

According to Bloomberg estimates, the second-month contract in Brent is now the most expensive versus the third-month in over a year, signaling deeper backwardation, the state of the market that points to tighter supplies with the prices of the nearer futures contracts higher than those further out in time.   

By Tsvetana Paraskova for Oilprice.com

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