Oil at 13-month peak due to sharp drop in US output

LONDON: Oil prices remained close to 13-month highs on Thursday, with profit-taking limited by an assurance that U.S. interest rates will stay low and a sharp drop in U.S. crude output last week due to the storm in Texas.

Brent crude for April hit $67.70 a barrel during the session, its highest since Jan. 8, 2020. By 1437 GMT, it had slipped 48 cents, or 0.7%, on the day to $66.56.

US West Texas Intermediate was down 49 cents or 0.8% at $62.73, ater also hiting a 13-month high of $63.79.

Tamas Varga, analyst at PVM Oil Associates, said the dip was partly due to profit taking ater a three-day rally.

An assurance from the US Federal Reserve that interest rates would stay low for a while weakened the U.S. dollar, while boosting investors’ risk appetite and global equity markets.

The winter storm in Texas caused US crude production to drop by more than 10% or 1 million barrels per day ( bpd) last week, the Energy Information Administration said.

Fuel supplies in the world’s largest oil consumer could also tightened as its refinery crude inputs had dropped to the lowest since September 2008, EIA’S data showed.

ING analysts said U.S. crude stocks could rise in weeks ahead as production has recovered fairly quickly while refinery capacity is expected to take longer to return to normal.

Barclays, which raised its oil price forecasts on Thursday, said it oil could rally again on the weaker-than-expected supply response by US oil operators to higher prices.

“However, we remain cautious over the near term on easing OPEC+ support, risks from more transmissible COVID-19 variants and elevated positioning,” Barclays said.

The Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, are due to meet on March 4.

The group will discuss a modest easing of oil supply curbs from April given a recovery in prices, OPEC+ sources said, although some suggest holding steady for now given the risk of new setbacks in the batle against the pandemic.

Extra voluntary cuts by Saudi Arabia in February and March have tightened global supplies and supported prices.

The effect of reassurances by US Federal Reserve chief Jerome Powell on interest rate hikes faded Thursday as US stocks opened lower and gains in Europe thinned.

Wall Street jumped on Wednesday, with the Dow hiting another record, but it edged lower in initial trading, giving up 0.1 percent.

The S&P 500 and Nasdaq Composite also moved lower.

In Europe, London stocks were up 0.3 percent, Paris added 0.1 percent, and Frankfurt turned 0.1 percent lower.

Powell on Wednesday again reiterated the

US central bank’s commitment to keeping the financial taps wide open until inflation was sitting persistently at its two percent target and unemployment had been tamed.

Addressing fears that inflation could jump too sharply, Powell stated that rising prices are “a different thing from persistent high inflation, which we do not expect and if we do get, then we have the tools to deal with it”.

Oanda analyst Craig Erlam said that Powell’s soothing tones -- along with some positive news on the pandemic front, helped boost stocks late on Wednesday, “but already we’re seeing that fade” as yields on bonds continue to rise.

“Despite Powell’s assurances, investors are growing increasingly convinced that higher inflation will prompt central banks to tighten sooner,” he added.

In addition to rising yields US Treasuries, the rate on 10-year French government bonds rose above zero for the first time since June 2020.

Yields on German government 10-year bonds have also been rising if they still remain in negative territory.

The rising yields on government bonds, or the rate of return for investors, may indicate higher inflation expectations as the economies rebound from the pandemic.

“Yields are rising across the board, a sign of confidence in the global economy to recover powerfully in the post-pandemic world,” said Erlam.

“But it’s also a massive headache for central banks keen to remain extremely accommodative in the early stages of the recovery,” he added.

Equities have soared in recent months on optimism over a vaccines-propelled global economic recovery, but fears persist that imminent US government stimulus will fuel inflation and force the Federal Reserve to reverse its ultraloose monetary policy.