SPY383.63+6.93 1.84%
DIA315.24+5.66 1.83%
IXIC12,920.15+196.68 1.55%

UPDATE 4-Brent hits $60 as supply cuts and stimulus hopes boost prices

· 02/07/2021 23:50
UPDATE 4-Brent hits $60 as supply cuts and stimulus hopes boost prices

Weak dollar also supports prices of commodities

6-month Brent spread widest in over a year

U.S. oil rig count highest since May last week - Baker Hughes

Updates prices, adds analysts' comments, changes dateline from Singapore

By Bozorgmehr Sharafedin

- Oil prices rose on Monday to their highest in just over a year, with Brent nudging past $60 a barrel, boosted by supply cuts among key producers and hopes for further U.S. economic stimulus measures that can boost demand.

Brent LCOc1 was up 71 cents, or 1.2%, at $60.05 a barrel by 0943 GMT, and U.S. West Texas Intermediate CLc1 rose 64 cents, or 1.1%, to $57.49 a barrel.

Both contracts were at their highest levels since January 2020.

"Oil prices are back close to pre-pandemic levels," said Norbert Rücker, analyst at Swiss bank Julius Baer.

"Support seems robust and the narrative sees the oil market swiftly burning through the remaining crisis-surplus, potentially running into tightness later this year," he added.

The oil market continues to tighten with deeper cuts from Saudi Arabia who pledged extra supply cuts in February and March on the back of reductions by other members of the Organization of the Petroleum Exporting Countries and its allies. nL1N2K91JQ

In a sign that prompt supplies are tightening, the six-month Brent spread LCOc1-LCOc7 hit a high of $2.54 on Monday, its widest since January last year.

OCBC's economist Howie Lee said the world's top exporter Saudi Arabia sent a "very bullish signal" last week when it kept monthly crude prices to Asia unchanged despite expectations of small cuts. CRU/OSP

"I don't think anybody dares to short the market when Saudi is like this," he added.

A weaker dollar against most currencies on Monday also supported commodities, with dollar-denominated commodities becoming more affordable to holders of other currencies. nL4N2KD0TN

Investors are also keeping a close watch on a $1.9 trillion COVID-19 aid package for the United States that is expected to be passed by lawmakers as soon as this month. nL1N2KD0A7

Hopes that Iranian oil exports would soon return to the market have been dampened, supporting oil prices.

U.S. President Joe Biden said the United States would not lift sanctions on Iran simply to get it back to the negotiating table, while Iran's Supreme Leader Ayatollah Ali Khamenei said all sanctions should be lifted first. nL1N2KD05D

Stronger crude prices are, meanwhile, encouraging U.S. producers to increase output.

The U.S. oil rig count, an early indicator of future output, rose last week to its highest since May, according to energy services firm Baker Hughes Co. RIG/U

(Reporting by Bozorgmehr Sharafedin in London, additional reporting by Florence Tan in Singapore, editing by Louise Heavens)

((bozorgmehr.sharafedin@thomsonreuters.com; Twitter: @bozorgmehr;))