U.S. infrastructure bill ‘screams bullish for oil’ as crude futures post back-to-back session gains

Oil futures rose on Monday, bouncing back from last week’s losses to post back-to-back session gains, as investors cheered passage of a $1 trillion U.S. infrastructure spending package and Saudi Arabia lifted prices for crude exports.

West Texas Intermediate crude for December delivery CL00, 0.16% CLZ21, 0.13% rose 66 cents, or 0.8%, to settle at $81.93 a barrel on the New York Mercantile Exchange. The U.S. benchmark fell 2.8% last week, January Brent crude BRN00, 0.18% BRNF22, 0.18%, the global benchmark, gained 69 cents, or 0.8%, to settle at $83.43 a barrel on ICE Futures Europe after falling 1.2% last week.

Both contracts ended Monday at their highest since Nov. 2, FactSet data show.

“When the market saw oil prices fall after last week’s OPEC+ meeting most observers knew this was an exaggerated reaction and the expectation was that prices would quickly jump back as there was no surprise to justify the drop,” said Louise Dickson, senior oil markets analyst at Rystad, in a note.

Global oil-market conditions became more bullish following last week’s meeting of the Organization of the Petroleum Exporting Countries and its allies, which saw the producers defy pressure to increase the size of planned production increases, she said.

OPEC+ has also been “struggling to pump [oil] as promised,” according to an S&P Global Platts survey released Monday. OPEC+ crude-oil production rose by 480,000 barrels per day in October, but only half of the group’s members actually lifted output last month, the survey showed.

The 19 OPEC+ members with production quotas were a combined 600,000 barrels per day below their allocations for the month, putting compliance at 113.21%, the survey said.

Oil demand is likely to grow in the wake of the $1 trillion infrastructure bill passed by Congress late Friday, Dickson said.

“This U.S. infrastructure bill screams bullish for oil,” Dickson wrote.

Meanwhile, a decision by Saudi state-run oil company Saudi Aramco to boost crude prices on exports added to the bullish tone, analysts said.

Aramco late Friday more than doubled the premium that Asian consumers would pay beginning in December next month for its flagship Arab Light crude to $2.70 a barrel more than the average of Platts Dubai and DME Oman prices. Aramco also raised prices for its sales of light crude to the U.S. to $1.75 a barrel above the Argus Sour Crude Index, which reflects the U.S. Gulf Coast medium-sour crude, and cut discounts it offers Northern European and Mediterranean consumers to $0.30 a barrel less than ICE Brent prices.

“The price increments are much higher than market expectations and give a bullish signal on supply tightness,” said Warren Patterson, head of commodities strategy at ING, in a note. “OPEC’s steady approach on the output increments at 400,000 barrels a day per month and stronger oil demand in global markets appears to have contributed to the increase in prices.”

Oil traders also assessed the latest data on China’s crude oil imports, which slumped below the 9 million barrel-per-day mark to a 39-month low of 8.94 million barrels per day in October, according to a report from S&P Global Platts Monday, citing data from the General Administration of Customs. The decline came as both state-owned and private refiners slowed down buying in the face of high oil prices, the report said.

At the same time, analysts are watching for clues as to whether the Biden administration, whose pleas for OPEC+ to accelerate production increases were ignored last week, will tap the U.S. Strategic Petroleum Reserve. Analysts said a decision on such a move would likely come after the Tuesday release of the Energy Information Administration’s latest Short-Term Energy Outlook.

In other Nymex energy trading, December gasoline RBZ21, 1.31% tacked on nearly 0.1% to $2.322 a gallon and December heating oil HOZ21, 0.90% added 0.5% to $2.467 a gallon.

Natural-gas futures fell for a second session in a row, with the December contract NGZ21, -2.91% down 1.6% to $5.427 per million British thermal units.
Source: Market Watch