Brent crude prices settled above $60 a barrel for the first time in over a year on Monday, boosted by pandemic-recovery optimism and expectations for the passage of the latest U.S. economic stimulus package.
Prices also found support after President Joe Biden pushed back against immediately lifting sanctions on Iran.
“Several factors are feeding into these buoyant prices, most importantly, the current level of financial market enthusiasm” surrounding the rollout of COVID-19 vaccines, said Cailin Birch, global economist at The Economist Intelligence Unit, in emailed commentary.
“In addition, the likelihood that the Biden administration will pass a second big economic relief bill and recent robust economic activity in China have lifted investor hopes for the pace of economic recovery in 2021,” she said.
April Brent crude the global benchmark, climbed by $1.22, or 2.1%, to settle at $60.56 a barrel after trading as high as $60.63 on the ICE Futures Europe exchange. Prices based on front month tallied a seventh straight session climb and logged the highest finish since Jan. 24, 2020, according to Dow Jones Market Data. Prices fell last year as concerns over COVID-19 and weak demand began to hit the oil market.
Expectations for increasing demand and production restraints by major oil producers were key to driving oil prices higher last week. Brent tallied a weekly climb of 7.8%.
West Texas Intermediate crude for March delivery rose $1.12, or 2%, on Monday to settle at $57.97 a barrel on the New York Mercantile Exchange, the highest since Jan. 21, 2020. Front-month U.S. benchmark prices gained 8.9% last week.
“Institutional investors on the ICE are more optimistic about Brent than at any time in the past year,” said Eugen Weinberg, head of commodities research at Commerzbank, in a note.
But “it is hard to escape the elephant in the room which is that these higher prices could well act as a brake on consumer demand, prompting demand destruction, and snuffing out any nascent recovery,” said Michael Hewson, chief market analyst at CMC Markets, in a note to clients.
“Of course, with these higher prices, the consensus and discipline among OPEC+ members [Organization of the Petroleum Exporting Countries and its allies] could well start to fracture as some countries break ranks to increase production in order to take advantage of this move higher,” said Hewson.
Global oil stockpiles remain well above the average level seen in the last five years, The Economist Intelligence Unit’s Birch said Monday, adding that she thinks oil prices are “currently defying these more cautious fundamentals.”
She expects prices to slip back from their current highs in the second quarter, “as the reality sets in that the global economic recovery is only likely to accelerate in the second half of the year.” She forecasts an average of around $56-$57 for Brent crude this year, an increase of more than 30% from last year.
For now, oil prices rose in step Monday with U.S. benchmark stock indexes on expectations for more stimulus from Washington. Treasury Secretary Janet Yellen said on Sunday that Biden’s $1.9 trillion relief plan could help restore full employment by next year.
On Sunday, meanwhile, Iran’s supreme leader Ayatollah Ali Khamenei pushed for the U.S. to lift sanctions on his country, according to state television. But Biden said in an interview with “CBS Evening News” that Iran must stop enriching uranium first and stick to its nuclear deal agreements before sanctions are lifted.
Former President Donald Trump pulled the U.S. out of the key nuclear deal in 2018 and reimposed Iran sanctions.
Elsewhere on Nymex, March gasoline rose nearly 1.6% to $1.6748 a gallon. March heating oil added 2% to $1.7478 a gallon.
March natural gas settled at $2.882 per million British thermal units, up 0.7%.