Oil futures advanced Wednesday, building on gains scored the previous session as traders penciled in expectations for aggressive pandemic aid spending by the incoming administration of Joe Biden.
West Texas Intermediate crude for February delivery CL.1, +0.96% CLG21, +0.96% rose 44 cents, or 0.8%, to $53.42 a barrel on the New York Mercantile Exchange. March WTI CLH21, 1.04%, the most actively traded contract, was up 48 cents, or 0.9%, at $53.46 a barrel. March Brent crude BRNH21, 0.70%, the global benchmark, was up 30 cents, or 05%, at $56.20 a barrel on ICE Futures Europe.
“The calculation is simple: increased fiscal support means more growth and higher U.S. oil demand,” said Eugen Weinberg.
Biden becomes U.S. president at noon Eastern. On Tuesday, Janet Yellen, the former Federal Reserve chair and Biden’s nominee to be U.S. Treasury secretary, told the Senate Finance Committee that the government should “act big” when it comes to fiscal spending aimed at boosting the economy as it attempts to recover from the COVID-19 pandemic.
Biden has proposed a $1.9 trillion spending package, which faces a tough battle in a 50-50 Senate where Democrats will have control by virtue of Vice President-elect Kamala Harris’s tiebreaker vote.
Meanwhile, the oil market is likely to remain in a supply deficit over the first quarter and the rest of the year thanks to a surge in demand in the second half of 2020 as economies began to recover from the coronavirus pandemic along with disciplined compliance with OPEC+ production curbs, Weinberg said.
“It is true that the higher oil prices in recent months have led to increased exploration again,” Weinberg said. “However, production itself will only respond after some delay. And for another thing, many shale oil producers will have to take a more defensive approach after the bitter lessons learned in recent years, establishing a solid financial strategy for themselves and repaying their debts rather than pursuing growth at any price.”