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Crude Oil Hits Pre-Pandemic Highs on Bets Vaccine to Keep Rebalancing Intact

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·2 min read
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By Yasin Ebrahim

Investing.com – Crude oil prices jumped to pre-pandemic 11-month highs on Tuesday as investors bet the pandemic's grip on energy demand is coming to an end as the rollout of vaccines and stimulus will keep rebalancing on track.

On the New York Mercantile Exchange WTI crude futures for February delivery rose 96 cents to settle at $53.21 a barrel, while on London's Intercontinental Exchange (NYSE:ICE), Brent for March delivery rose 92 cents to trade at $56.58 a barrel.

Goldman Sachs (NYSE:GS) forecast Brent crude rising to $65 a barrel by mid-year, ahead of their previous estimate for the end of 2021 on expectations that the tightening in supplies will continue.

"We have long held a bullish view for oil prices in 2021 and the events of the first weeks of the year have sharply reduced the risks that the market rebalancing gets derailed," the Goldman Sachs analysts said.

The expectations for rebalancing to continue have been underpinned by a backdrop of positive factors including Saudi Arabia's unexpected decision to trim production.

Saudi Arabia said it plans to trim production by an extra 1 million barrels per day (bpd) in February and March to prevent a glut in inventories.

Bets on tightening global supplies have also been bolstered by falling crude inventories over two weeks, with economists forecasting the U.S. to report a third weekly drop of over 2 million for the week ended Jan. 7.

Ahead of the weekly U.S. petroleum report due Wednesday, market participants will parse the American Petroleum Institute's supply report due 4.30 PM ET.

The continued roll out of a vaccine, meanwhile, is key to plugging the demand gap in jet fuel demand in the wake of rising infections that have forced countries to impose restrictions to stem the spread of the virus.

"Oil demand remains very levered to reaching herd immunity, with half of global oil demand losses still coming from jet, where international travel remains down 75% despite domestic flying only down 28%," Goldman Sachs said.

The roll out of further stimulus in the U.S., meanwhile, will add further liquidity, keeping the dollar on the back foot and proving additional support for commodities including crude.

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