Oil price touches $50 a barrel for first time since March

The price of Brent crude has touched US$50 a barrel in recent trading, as the oil sector continues its recovery from a near-complete collapse in demand and pricing following the COVID-19 crisis.

Brent crude closed at $49.97 a barrel on Friday, while US West Texas Intermediate was trading at $46.56. The psychological threshold of $50 per barrel is more than double the price of oil when the market bottomed in April.

However, there remains a significant oil supply glut around the world following a build-up of inventories during the lockdown period in the first half of the year.

“Current prices reflect a market that completely ignores the fragility it is still in for the short-term,” said senior oil markets analyst at Rystad Energy Paola Rodriguez-Masiu. “Traders have decided to look past it and focus on the eventual ‘back-to-normal’ once the vaccines are deployed.

“Our short-term balances point to a market that continues oversupplied throughout the first quarter of 2021, albeit exhibiting moderate stock builds.”

In a bid to further support the sector’s recovery into the new year, OPEC and its allies (known as OPEC+) recently agreed to limit production rises to 500,000 barrels per day from January onwards.

But if the deal is kept in place for February and March, there will be an oversupply of 1.6 million barrels per day in the first quarter of 2021, said Wood Mackenzie.

“We expect Brent to hold a floor near $40 per barrel in January and average at least $45 per barrel for the month with this agreement,” said Wood Mackenzie vice president Ann-Louise Hittle.