Biden assumes US presidency, pushes for stimulus
New coronavirus variants threaten demand outlooks
WTI backwardation hits one-year high
New York — Oil futures settled higher Jan. 20 as the market eyed tightened global supply outlooks and the potential for further stimulus spending from the incoming Biden administration.
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Register NowNYMEX February WTI settled 26 cents higher at $53.24/b and ICE March Brent climbed 18 cents to $56.08/b.
President Joe Biden, who was sworn into office midday Jan. 20, outlined a $1.9 trillion stimulus package proposal last week, stressing that a bold investment was needed to jump-start the economy and accelerate the distribution of vaccines to bring the virus under control. Former Federal Reserve chair Janet Yellen, Biden's nominee to run the Treasury Department, told the Senate Finance Committee on Jan. 19 that the government must "act big" with its next coronavirus relief package.
"Oil's fundamentals are improving, but right now it is all about stimulus expectations that are driving prices higher," OANDA senior market analyst Edward Moya said. "The oil market seems unfazed with all the new virus variants and lockdown headlines and focusing on President Biden's agenda that should help defeat COVID a lot sooner and support large parts of the economy until crude demand recovers."
Brent futures tested fresh 11-month highs intraday but failed to hold these levels at settlement.
NYMEX February RBOB settled 58 points higher at $1.5439/gal and February ULSD was up 17 points at $1.6004/gal.
The promise of a stimulus-driven boost in oil demand comes at a time when oil's demand outlook seems increasingly uncertain. Three new highly contagious strains of the coronavirus from the UK, South Africa and Brazil are threatening tougher and longer restrictions. Already fresh coronavirus outbreaks in Asia have forced some cities to retreat into lockdowns, sapping oil demand.
"Energy market signals are telling — the demand destruction from increasingly frequent lockdowns is more than offset by Saudi's unilateral cuts, which are fueling the tightening in market balances and in turn are associated with a tightening in crude oil's term structure," TD Securities analysts said in a note.
Saudi Arabia on Jan. 5 pledged to curb crude output by an extra 1 million b/d in February and March in a bid to keep oil markets balanced amid a global resurgence of the COVID-19 pandemic.
Year-ahead WTI futures settled at a $2.80/b discount to the front-month contract, opening the widest backwardation in that part of the curve since Jan. 24, 2020.
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