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Oil Climbs Toward $63 With Tightening Market Boosting Outlook

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(Bloomberg) — Oil rose toward $63 a barrel with investment banks and traders predicting the market will tighten further and push prices higher.

Futures in New York gained 1.3% on Tuesday after climbing more than 4% in the previous session. The market is heading toward what could be the tightest quarter since at least 2000, according to Morgan Stanley, while Socar Trading SA sees global benchmark Brent hitting $80 this year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

See also: Brent Oil Backwardation at Widest in Year on Tight Market: Chart

The loss of oil output after the big freeze in the U.S. will also help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Fuel flows from Asia to the U.S. have gained after the cold blast left some of the biggest refineries facing a slow and messy restart.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The positive momentum continues in the oil complex, with investors unabashedly predisposed to a bullish view,” said Stephen Innes, global chief global market strategist at Axi. “There is far more optimism than fear.”

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap increased to $1 a barrel on Tuesday, compared with 25 cents at the start of the month.

Read more: Commodity Returns Hit Three-Year High With Oil Leading the Way

The global oil market has been under-supplied by 2.8 million barrels a day so far this year, Morgan Stanley said in a note, boosting its Brent forecast for the third quarter to $70 a barrel. Goldman has raised its estimate for the same period to $75, while Socar said $100 was possible in the next 18 to 24 months.

The market is likely underestimating the impact from the U.S. cold snap, Trafigura’s co-head of oil trading Ben Luckock said in a Bloomberg Television interview. Some 40 million barrels of February oil output — largely from the Permian Basin — will not be produced due to the freeze, he said.

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Read More: Oil Climbs Toward $63 With Tightening Market Boosting Outlook

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