Oil has joined other commodities in a blistering rally this year, emerging as a hedge for growing rates of inflation, and with demand rebounding from the depths of the pandemic. Most recently that has been led by the U.S., where even the lagging aviation industry is showing signs of picking up, and Europe. That’s despite the ongoing spread of the virus in parts of Asia, most notably India.
Crude’s gains this year are already having an impact on pump prices. Aided by the stoppage on the Colonial Pipeline system, U.S. gasoline topped $3 a gallon last week for the first time since 2014.
Traders are optimistic about the prospects for a bullish summer as consumption snaps back with travel re-opening. As a result, much of Wall Street is calling for higher prices in the coming months, with Goldman Sachs Group Inc. talking up the prospects of $80 a barrel. On Tuesday, a weaker dollar was also aiding crude’s rally.
“Hopes of a rise in demand and a weaker dollar is pushing oil prices higher,” said Hans van Cleef senior energy economist at ABN Amro. “If we break above the $70-$72 range, technically the way is open for $78-$80.”
Last week, the International Energy Agency marked a major moment in the market’s recovery, saying that the surplus stockpiles that have built up since the pandemic began have cleared.
That’s reflected in the oil market’s structure which is now largely trading in a bullish backwardation — where nearby prices are more expensive than ones further out. That pattern generally indicates tight supply.