The spread between the two February futures contracts closed at $3.02. On October 30, the session before the last major bottom, the settled at $1.83.
Buyer resilience in the wake of negative news earlier in the week was event all week as investors shrugged off reports highlighting demand concerns from OPEC and the Energy Information Administration into the close on Friday.
Buyers were also impressed by increasing demand from Asia with China and India leading the charge for more oil. China has been carrying the world’s oil consumption in recent months, with crude imports in November bouncing back from a six-month low the previous month.
Demand in key hub India has also given the bulls something to latch on to. India appeared to turn the corner in October, with oil products demand up 2.5% year on year, ending seven straight months of decline.
Crude oil bulls chose to focus on the positive on Friday and for most of the week even as COVID-19 infections remain at peak levels globally, decimating demand for transport fuels, the mainstay of oil use.
European and U.S. mobility trends remain weak, suppressing the appetite for gasoline and diesel. According to the U.S. Energy Information Administration (EIA), crude stocks fell the week-ending December 11, but U.S. gasoline stocks rose by 1 million barrels and distillate stockpiles rose by 167,000.
Meanwhile jet fuel is still so unwanted refiners are turning it into shipping fuel. A warmer winter in the Northern hemisphere is likely to blunt demand for heating oil, too, according to S&P Global Platts Analytics.
Everything came up roses for crude oil bulls on Friday, but is this necessarily a good sign? After all, demand remains fragile, refineries are being closed and OPEC+ is gearing up to supply another 500,000 barrels of crude oil per day in just 11 days.
Speculative buyers like higher prices, but this rally could come to a screeching halt with the U.S. rig count rising along with the potential for more supply by OPEC plus. Furthermore, we’re not likely to see any major improvement in demand until late in the first quarter 2021. I think the market is closer to a top then speculative bulls think.
Additionally, all it is going to take is a strong short-covering rally by the U.S. Dollar to encourage the hedge funds to start selling.