Oil Rises to Highest Since 2018 as Traders See Further Rally

(Bloomberg) -- Oil climbed as a chorus of prominent traders in the crude market said prices will continue to rise after a nearly 50% rally so far this year.

Futures in New York advanced as much as 1.6% on Tuesday to the highest intraday level since 2018. At the FT Commodities Global summit, Glencore Plc and Vitol Group both said they see further gains in oil. There’s even a chance crude prices could hit $100 a barrel on a lack of supply amid underinvestment in the sector, according to Trafigura CEO Jeremy Weir.

“Everybody’s continuing to do the math on rising demand and hesitancy among producers to dive back in and put more oil in the market,” said John Kilduff, a partner at Again Capital, LLC. “So there’s a developing structural supply-demand deficit.”

Crude has soared this year in the wake of accelerating Covid-19 vaccination programs. At the FT Commodities Global summit, Glencore’s Alex Sanna said global demand should return to normal in the third quarter of next year, and crude prices may move higher on more widespread vaccinations and inflationary pressures. Vitol CEO Russell Hardy said while diesel and petrochemical demand is already at pre-Covid levels, there is a “little bit more upside” for oil prices.

Meanwhile, money continues to rotate into the commodities sector more broadly. A monthly survey of fund managers by Bank of America showed that bullish commodities bets had overtaken Bitcoin as the most crowded trade in markets.

Still, a decision by the U.K. to extend virus restrictions has tempered some optimism around robust summer consumption. On Monday, World Health Organization Director-General Tedros Adhanom Ghebreyesus warned that the virus is now “moving faster than the global distribution of vaccines.”

See also: Citi Sees Summer Season as Constructive for Oil, Energy

Further along the oil futures curve, there are signs of market tightness. The difference between the nearest two WTI December contracts on Tuesday hit $6, heading for its strongest close since September 2019, a sign traders are betting on a stronger market. The spread between the next two December contracts is at the strongest since 2018.

In the U.S., crude stockpiles are expected to have dropped 2.5 million barrels last week, according to a Bloomberg survey. The industry-funded American Petroleum Institute will report its inventory data later Tuesday, while the U.S. government will release its tally on Wednesday.

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