The Daily Dose; Rally could signal go time for drillers

-Kemp wonders about output

-US labor market holding steady

A rally in crude oil prices extended into Thursday trading, with the price for Brent crude oil marching ever closer to the $60 per barrel mark. The rally was supported in part by positive employment news from the United States. A weaker US dollar muted some of the gains and one important voice in the energy space says to look out for the rally to start incentivizing more production.

The price for Brent crude oil posted only modest gains during the Thursday session, climbing about a quarter percent as of 2 p.m. ET to hit $58.88 per barrel. It was a better day for West Texas Intermediate, which had rallied by about 1.3% to hit $56.44 per barrel.

The US Labor Department reported first-time claims for unemployment insurance declined by 33,3000 to 779,000. The less-volatile four-week moving average saw initial claims drop by 1,250 to 848,250. While leveling off, new claims are still above where they were before the start of the pandemic in early 2020. Some 200,000 people filed first-time claims for unemployment during the first week in February last year, though recent filings are well below peak unemployment from April 2020. That suggest stability, but not normalcy, is emerging in the US economy, thereby supporting commodities.

After the Biden administration cracked down on illicit shipments of Iranian crude oil, it emerged Thursday that British, French, German and US foreign ministers were expected to discuss renewed emphasis on détente with Iran. While not yet a factor for the price of oil, the prospects of Iranian return could create headwinds for commodities. For December, SVB International guessed that Iran exported around 710,000 barrels per day, a 45% increase from October levels.

Iran may be ahead of the curve on production. Reuters oil oracle John Kemp noted Thursday that the steady increase in crude oil prices signals a need for more output. And with the steady increase in North American rig counts, that output could show up as early as June. Expecting a production shortfall, Kemp writes that market structures suggest more production is coming.

“The rapid escalation in spot prices and tightening in spreads is consistent with a market climbing towards a cyclical peak, and signaling the need for more output to relieve expected future shortfalls,” he commented on Thursday.

Whether the race to vaccinated against COVID-19 turns into a sprint or a marathon will determine if the demand is there to sop up that extra crude.

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