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Crude oil rises above $70/bbl; here's why Brent is on the boil

Crude oil rises above $70/bbl; here's why Brent is on the boil

Crude oil rises above $70/bbl; here's why Brent is on the boil
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By Ankit Gohel  Mar 8, 2021 3:12:04 PM IST (Published)

Crude oil prices have been rising sharply with the international Brent oil prices surging above USD 70 a barrel for the first time since the COVID-19 pandemic began. The US crude also touched its highest in more than two years.

Crude oil prices have been rising sharply with the international Brent oil prices surging above USD 70 a barrel for the first time since the COVID-19 pandemic began. The US crude also touched its highest in more than two years.

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Analysts are of the view that the oil prices are expected to rise going ahead as the fundamentals remain strong and the brent oil may hit USD 72 a barrel soon.
“The key trigger for the rise in crude oil prices was the extension of an output cut by the OPEC+ countries. The global demand for oil is also rising as economic activities are picking up. But, there is a supply deficit. This demand-supply mismatch is also lifting the crude oil prices,” said Amit Sajeja, Vice President - Research - Commodities & Currencies, ‎Motilal Oswal.
Here are key reasons behind the surge in crude oil prices:
OPEC output cut
The Organization of the Petroleum Exporting Countries (Opec) and its allies agreed to extend most of the oil output cuts till April. The cartel’s leader Saudi Arabia has decided to extend its voluntary oil output cut of 1 million barrels per day (bpd).
Last year, Opec agreed to cut world oil supply by a massive 9.7 million barrels a day, about 13 percent of global production.
Geopolitical tensions in the Middle East
Yemen's Houthi forces fired drones and missiles at the heart of Saudi Arabia’s oil industry on Sunday, including a Saudi Aramco facility at Ras Tanura vital to petroleum exports, in what Riyadh called a failed assault on global energy security, said a Reuters report.
Saudi Aramco’s facility is the world’s largest oil terminal, capable of exporting roughly 6.5 million barrels a day, nearly 7 percent of current oil demand.
Rising Demand
The global oil demand is rising as the economic activities are gearing up after the rollout of COVID-19 vaccines and easing lockdown measures. Meanwhile, the world’s largest crude oil importer China’s crude shipments in the first two months of 2021 were up 4.1 percent on-year as it expanded its refining capacity.
“The oil demand is picking up and is around 96 million barrels per day, while the supply is just around 94-95 million barrels per day. This supply deficit is lifting the prices,” said Sajeja.
Rising brokerage estimates
Certain brokerages have raised their forecasts for crude oil prices. Goldman Sachs Group Inc. raised its Brent forecasts by $5 a barrel and now sees the global crude benchmark at $80 in the third quarter. Similarly, JPMorgan has also increased its projection for Brent oil by $2 to $3 a barrel. Citigroup Inc. expects crude to top $70 before the end of this month.
“The sentiment for crude oil also turned positive after global research houses increased their forecasts. This boosted speculative buying the crude oil,” Sajeja said.
Going ahead, Sajeja expects the crude oil prices to remain elevated on the back of the above factors. On the MCX, he expects crude oil to reach Rs 5,050 level soon.
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