The Daily Dose; Market rally knows no quarter

-Crude oil prices riding the Saudi production wave

-Saxo Bank: We don’t see oil moving too much higher

Crude oil prices continued a steady rally into Friday, riding on the back of signs the market is tightening up following extraordinary production restraint from Saudi Arabia. The question remains, however, if signs of renewed demand destruction warrant a rally that’s known no quarter since vaccines for COVID-19 were introduced in early November. But like the U.S. postal service, neither sedition in the United States, a dip in employment and a stubborn pandemic can stop this market.

Brent crude is on pace for an 8% gain on the week, a staggering rally considering recent developments in the United States. The global benchmark for the price of oil was up nearly 3% as of 2:30 p.m. ET to trade at $55.98 per barrel.

“People are realizing the market is tighter than it has been in a while and that the commitment by Saudi Arabia to cut back production is going to keep the market balanced despite the concerns about shut-ins from COVID,” Phil Flynn, a senior analyst at Price Futures Group in Chicago, told Reuters on Friday.

Saudi Arabia left this week’s meeting of parties to the OPEC+ curtailment effort pledging to cut another 1 million barrels per day from its production, pushing the market into backwardation. That cut relieved earlier concerns that Russia and other would spoil the party with calls to put more barrels on a market still under pressure from the COVID-19 pandemic. Investors may be betting on something of a utopian future, however, as weekly U.S. data continue to show demand is still below year-ago levels.

“The Saudis most likely concluded that the next few months could see the current weakness in Western world fuel demand spread to Asia where infections are rising quickly,” Ole Hanson, the head of commodity strategy at Saxo Bank, wrote Friday. “With this in mind and from a current fundamental perspective, we remain skeptical about crude oil’s ability to forge much higher at this stage.”

Elsewhere, U.S. employment levels dropped as social restrictions meant to control the spread of the novel coronavirus causing COVID-19 continue to put pressure on the hospitality and leisure sectors. Congressional leaders last year passed a watered-down stimulus measure that leading Democrats described largely as a down payment on a better economic future. With President Trump finally coming to terms with the end of his tenure, investors are betting Joe Biden and a Senate-controlled congressional leadership will pump more stimulus money into the economy soon.

“This is a pause in the recovery, not a full-on stall,” Chris Low, chief economist at FHN Financial in New York,” told Reuters on Friday.

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