Brent oil prices Monday shot past $60 a barrel for the first time in more than a year Monday with investors growing increasingly optimistic about demand as the global economy recovers from the coronavirus pandemic.
The commodity climbed 1.26 percent to $60.19 a barrel — its highest since January last year — as asset markets rallied on the back of vaccine rollouts, slowing virus infections and hopes that President Joe Biden’s huge stimulus proposal will be passed by US lawmakers.
Crude has been on the rise for weeks as Biden pushes his $1.9 trillion rescue package, which includes big cash handouts and a hike in the minimum wage.
Treasury Secretary Janet Yellen said that if the spending package was passed in its entirety, “we would get back to full employment next year”.
Adding to the upbeat mood is data showing new infection rates, with last week seeing the lowest since October, while governments begin to get to grips with inoculations. Hopes for the long-term outlook overshadowed figures showing a rise in US inventories.
“Oil traders ignore the sidelines’ spare capacity and continue to take an optimistic view of the US reopening narrative as vaccination protocols should continue to flatten the curve and with the gale-force stimulus tailwinds supporting a spring break reopening, (it’s) providing rocket-fuelled optimism for the oil market,” said Axi strategist Stephen Innes.
Demand has been rising in parts of the world, particularly Asia. “We are quite optimistic about what it is that we are seeing in China,” Royal Dutch Shell chief executive Ben van Beurden said last week.
Other factors have also played their part to push up prices such as efforts by oil-producing nations, particularly Saudi Arabia, to limit output.
Since agreeing to the cut in production last April, producers have held back a cumulative 2.1 billion barrels of oil, leading to decreasing stockpiles.
The coronavirus crisis has been devastating for the petroleum industry, and last year prices slumped below zero with more than one billion surplus barrels.
Demand for fuel from airlines has seen the most dramatic fall as travel curbs remain in place. Air passenger traffic is 70% below year-ago levels, according to the International Air Transport Association.
But demand has picked up in other areas, thanks in part to the shift to working and consuming more from home.
As consumers are buying more online, this has spurred demand for fuel to power delivery trucks and vans, along with cargo ships and and freight trains.
The e-commerce boom has also caused a spike for plastic packaging, which is made using oil products.
However, oil demand is still lower than pre-pandemic levels and a slow economic recovery would delay a full rebound in world energy demand for years to come, the International Energy Agency warned last month.
“There could be more setbacks in the spread of the virus or the vaccinations, causing a pullback in prices, though short of another crisis,” added Ms Hari.