Brent crude passes $56 as market shows signs of strength

(Bloomberg) --Brent oil extended gains above $56 a barrel, rising with other assets on hopes of more U.S. economic stimulus and a weaker dollar.

While crude prices have largely undulated with the American currency in recent days, the oil market’s structure is also pointing to renewed strength.

U.S. crude’s closest contract is near the most expensive versus those for six months out in more than a year. There’s a similar picture in the Brent market. The structure, known as backwardation, indicates tight supply. The International Energy Agency this week said it expects inventories to fall by 100 million barrels this quarter, despite a surge in Covid-19 outbreaks.

Traders have piled into oil this year, with output cuts from Saudi Arabia helping drive prices to the highest since February. Virus vaccines have boosted both oil demand and the global economy, and U.S. Treasury Secretary nominee Janet Yellen called on lawmakers to “act big” on stimulus on Tuesday. Still, the pandemic is surging with China locking down part of Beijing as it grapples with its worst outbreak in months and Europe also reeling.

“As long as investors believe vaccinations will bring back normal life at some stage later this year every setback is used to buy into the market,” said Giovanni Staunovo, an analyst at UBS Group AG.

Prices:

• Brent for March settlement rose 0.7% to $56.27 a barrel as of 10:18 a.m. in London
• West Texas Intermediate for February, which expires Wednesday, rose 1% to $53.50

Chinese imports of U.S. and Russian crude last month were at similar levels to November, while purchases from Saudi Arabia and Iraq fell, according to customs data released Wednesday. Imports from Iran almost doubled.

Other oil-market news:

• Joe Biden will unveil sweeping action to combat climate change hours after becoming president, moving to rejoin the Paris accord and imposing a moratorium on oil leasing in the Arctic National Wildlife Refuge.
• Oil producers cheered the surprise supply curbs unveiled by OPEC kingpin Saudi Arabia this month, but India -- a big consumer -- was less thrilled.
• Saudi Arabia’s oil production cuts have hit the tanker market so hard that the biggest vessels are effectively subsidizing cargo deliveries on the industry’s main trade route.
• Shale explorers have now tapped the U.S. inventory of uncompleted, pre-drilled wells for a sixth straight month, another sign that they’re opting for the cheapest way to maintain production.