WTI at multi-year highs above $66.00 in afterglow of bullish OPEC+ meeting

• WTI has topped $66.00 for the first time since April 2019.
• The commodity continues to benefit in the afterglow of Thursday’s bullish OPEC+ outcome.
• But the demand outlook also continues to strengthen, adding further upward pressure to prices.

Front-month futures contracts for the American benchmark for sweet light crude, West Texas Intermediary (or WTI), continue to surge on the final trading day of the week. WTI has now eclipsed the $66.00 level for the first time since April 2019 and, after printing fresh 2021 highs at $66.20, came within only 38 cents of the 2019 high at $66.58.

Technically, speaking a break above the 2019 high could open the door to further protracted upside towards the 2018 highs at $76.88. A break beyond this level would open the door to a move back towards $100, though let’s not get too ahead of ourselves.

On the day, WTI is trading just under 3% or $1.80 higher. That means it has rallied more than 11.0% from this week’s low (set on Wednesday). On the year, that means WTI trades more than 36% higher, making it one of the best performing major asset classes.

Driving the day

Crude oil markets continue to benefit in the afterglow of Thursday’s announcement from OPEC+ that the group would be holding output largely steady. Russia and Kazakhstan were granted a small 150K barrel per day output hike allowance, but the rest of the cartel will roll over in April their output cuts that have been in effect for the last few months. Moreover, the Saudi Arabians opted to continue with their 1M barrel per day in additional, voluntary output cuts. Markets had been expected OPEC+ to decide to bring back online as much as 1M barrels per day in supply, so this was a very bullish outcome.

Demand outlook brightening

Though OPEC+ has been the major focus of crude oil markets over the past three days, it is worth also noting that the demand outlook for crude oil over the coming months continues to strengthen.

Friday’s US Labour Market report showed a much stronger than expected rebound in employment in the country in February as Covid-19 restrictions were eased, boding well for US employment prospects (and the US economy more broadly) in the coming months. Assuming that US economy will continue to rebound strongly over the coming months seems reasonable as economic reopening and the country’s vaccine rollout has accelerated in the first few days of March; the Biden administration is hoping to vaccinate all adults by May, implying a strong likelihood that restrictions will be all but gone by Summer (the same assumption can be made for the UK). Meanwhile, another large dose of fiscal stimulus from the US government (which markets expect Congress will pass into law by mid-March) is set to send things into overdrive.

Prospects for an economic recovery, though maybe not as bright as is the case in the US, look good for most of the rest of the world also. As the Northern hemisphere enters Summer, virus levels ought to naturally drop and economic restrictions with them (as was the case in 2020), implying by default stronger demand for crude oil. Fears about the international spread of concerning Covid-19 variants is likely to mean that international travel restrictions remain a lot tougher than domestic restrictions (which will weigh on jet fuel demand), but the data so far shows that Covid-19 vaccine still work against, for example, the Brazilian P.1. variant.