After rapidly approaching the $60 per barrel level, crude oil is pulling back on Thursday, even as data suggests that global oil stocks are predicted to quickly draw down in the second half of this year as demand climbs.
Crude oil futures are down 0.6% to $58.32 per barrel, while stock ETFs and other energy futures are declining as well on Thursday. The pullback comes after nine consecutive day higher, which has seen crude rally 14%.
The news creates an environment for the oil cartel, OPEC+, to lessen production limits even if higher prices lure producers from outside the group into increasing production, the International Energy Agency (IEA) said on Thursday.
In 2021, world oil demand is expected to increase by 5.4 million barrels per day (bpd) compared to 2020, where the pandemic wiped out demand, the IEA said in its heavily-monitored Oil Market Report for February.
The increase is still 100,000 bpd lower than the projection in the January report from the agency.
The latest estimate from this month pegs total global oil demand reaching 96.4 million bpd, which would be recovering some 60 percent of the volume lost to the pandemic in 2020, the IEA said today.
Banking on an Oil Comeback?
Many analysts and other forecasters agree with the EIA, predicting demand to be anemic in the first quarter of 2021 but pick up pace in the latter half of the year.
“While oil demand is expected to fall by 1 mb/d in 1Q21 from already low 4Q20 levels, a more favorable economic outlook underpins stronger demand in the second half of the year,” the IEA said in its report.
Meanwhile, crude ETFs, which have rallied strongly, are also pulling back on Thursday, with the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) each dipping 0.2%.
Oil producers outside the OPEC+ alliance have begun to change tactics in response to the rally in oil prices, the agency noted.
“Led by the prolific Permian Basin, US drilling and completion rates have risen steadily in recent months,” the IEA said.
The agency still anticipates U.S. crude oil supply to remain nearly breakeven, around 11.2 million bpd after falling by 940,000 bpd last year, while “Canada, now pumping at record rates, has restored nearly all the volumes shut in at the height of last year’s demand collapse.”
For investors looking for crude ETFs to play the run-up in oil, which has been fairly steady since November, the United States 12 Month Oil Fund (USL) and the iPath Pure Beta Crude Oil ETN (OIL) are two funds to consider.
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