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  • WTI has been on the front foot for most of the session and is currently pushing on towards $66.00.
  • US fiscal stimulus and labour market optimism combined and a bullish OPEC MOMR are helping boost crude prices.

It’s been a choppy affair but, for the most part, crude oil markets have been on an upwards trajectory this Thursday. Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary (or WTI), have rallied from Asia pacific levels of under the $65.00 level into the upper $65.00s and on towards the $66.00 mark. On the day, WTI is up about 2.0% or about $1.30.

Driving the day

With last week’s OPEC+ meeting in the rear-view mirror and all things quiet (for now) on the geopolitical front, crude oil markets are mostly trading as a function of risk appetite; US equities are putting in a solid shift with the S&P 500 now up nearly 1.5% on the day and back at all-time intra-day high levels in the 3950s in wake of Congress passing US President Joe Biden’s $1.9T stimulus package on Wednesday (Biden will sign it into law on Friday) and as anticipation for the next infrastructure-focused stimulus package growing.

Indeed, over the last few days, news flow regarding this next stimulus package (Biden’s touted “recovery” package) has been picking up; reports suggest it could have a price tag of up to $2.5T over the next four years and contain measures related to improving US competitiveness versus China, whilst separate reports suggest a starting point for negotiations on the stimulus package could be for a $1.5T bill. Biden is going to be giving more details his hopes/plans for the recovery package on Friday after he signs the rescue package into law.

Updated IMF forecasts for the US economy expect Biden’s just Congressionally approved $1.9T stimulus package to increase US GDP by 5-6% over the next three years. Another multi-trillion package would only further turbocharge the economic recovery, hence the optimism being seen in equity markets.

Just as the above news of more US fiscal stimulus and higher resultant economic growth is boosting US equity markets via the channel of higher expectations for earnings growth, crude oil is also deriving support from the fact that this also boosts the outlook for crude oil demand.

Elsewhere, and further contributing to the market’s relatively risk on tone on Thursday; US weekly jobless claims numbers came in better than expected; for the weekend ending on 6 March, 712K American signed up for unemployment benefit, slightly below expectations for 725K sign-ups. Meanwhile, the number of Americans who continued to claim unemployment benefits in the week ending on 27 February was a little lower than expected at 4.144M versus consensus expectations for something closer to 4.22M. This comes on the heels of last week’s strong February NFP report and obviously, a stronger labour market recovery in the US bodes well for the economic recovery and recovery in demand for crude oil.

OPEC MOMR

There is one supply-side factor of note on Thursday that does seem to have contributed to the strong performance of crude oil prices; OPEC released their monthly oil market report (MOMR) and it was more bullish on the prospect for crude oil demand that the US Energy Information Agency’s similar report that was released earlier in the week; OPEC upgraded their forecast for oil demand growth in 2021 by 200K barrels per day and now expect daily oil demand to average 96.3M barrels per day this year.

Though the cartel’s forecast for oil demand in the first half of the year was revised lower, mainly as a result of Covid-19 restrictions in many parts of Europe, oil demand forecasts for the second half of the year were revised higher, a reflection of expectations for a stronger economic rebound aided by the positive impact of vaccine rollouts.