Oil price rises to 13-month high

The price of Brent Crude rose to a 13-month high on Monday selling at $63 per barrel in early Asian trade amid tighter global supplies and a pick-up in demand as the global economy rebounds.

The rise in oil price, analysts say, is an indication of improvement in worldwide vaccination efforts and more government spending, which brightened the global economic outlook.

Supporting prices further were fresh Middle East tensions after the Saudi-led coalition intercepted and destroyed an explosive-laden drone fired by the Iran-aligned Houthi group.

Chief Market Strategist at FXTM, Hussein Sayed, noted that the main factors contributing to the rally were an abating pandemic, with vaccine roll-outs allowing countries to gradually ease lockdowns, improving outlook for business activity, prospects of the $1.9tn United States stimulus package and the disciplined supply curbs from OPEC+ members led by Saudi Arabia.

U.S. shale companies are very satisfied with current prices and may ramp up their production significantly in near future, but in the next few days, freezing weather conditions may make it hard to do this, which means supply will be tight.

Unlike most other commodities, the supply side of the equation is pushing oil prices higher and from a technical perspective. Crude is sitting at its most overbought price in more than two decades with the 14-day RSI near 84.

The tighter oil market conditions have led the Brent April future contract to trade at $4.30 premium to those of December delivery. This, according to Sayed, suggests that global oil inventories will be depleted at a faster pace than anticipated by OPEC or the International Energy Agency.

OPEC has proved many times in the past that it can put a floor on prices and once again it has succeeded with its new allies.

“Despite prices being in extremely over-bought territory, we may see further strong gains if OPEC+ do not take action to raise output in the next few weeks. However, the higher prices go from here, the steeper the correction could be. The last time the RSI traded near 80 was back in October 2018, in which prices fell from a high of $86.70 to $50, or a peak to trough move of over 41,” he said.

At the time of writing, Brent Crude is trading at $63.19, a level last seen in January 2020.

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