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Oil Jumps 4% on Cocktail of Risk-on Trades and Memorial Day Bets

imageCommodities14 minutes ago (May 24, 2021 03:37PM ET)

(C) Reuters.

By Barani Krishnan

Investing.com – Oil prices jumped as much as 4% Monday as investors across markets recovered their appetite for risk after weeks of obsessing over inflation worries.

Bets that U.S. roads will see a surfeit of motorists over the three-day long weekend break stretching into Monday’s Memorial Day added octane to the rally.

Aside from these, oil longs leaned on the $80 per-barrel mantra regurgitated by Goldman Sachs (NYSE:GS) and reports from the weekend that Tehran had closed surveillance on its nuclear sites which were crucial for advancing talks to remove U.S. sanctions on crude exports.

(Iran and the U.N.’s nuclear watchdog agreed Monday to a one-month extension to a deal on surveillance cameras at Tehran’s atomic sites, but the update was lost in the fervor of crude’s bull stampede coming after last week’s 3% loss)

West Texas Intermediate crude for July delivery, the benchmark for U.S. oil, settled up $2.47, or 3.9%, at $66.05 per barrel.

Brent crude for July delivery, which acts as the global benchmark for oil, settled up $1.93, or 2.9%, at $68.37.

Oil rallied amid the risk-on appetite across Wall Street that unanimously lifted stocks on the Dow, S&P 500 and Nasdaq indexes.

U.S. stocks have mostly fallen this month on fears of inflation as prices of almost everything, from lumber to soybeans, rose on the back of an economy recovering from the Covid-19. The Federal Reserve has insisted that the higher price pressures were just transitory and will come to pass once bottlenecks in the supply chain dissipate. Investors seemed to buy some of that argument on Monday, with the dollar and yields tied to the 10-year U.S. Treasury note both trading sharply off May’s highs.

Also propping up energy markets on Monday were expectations that Americans will fill up their tanks at least more than once this week for road trips stretching over the three-day long break into the May 31st Memorial Day holiday.

The American Automobile Association expects as many as 37 million road travelers on this Memorial Day, up 60% from last year’s pandemic-suppressed 23 million travelers.

In line with that forecast, market intelligence firm Genscape reported a drawdown of nearly 1.4 million barrels of crude at Cushing, Oklahoma, during the week to May 21, indicating that refiners were churning out a surfeit of gasoline, diesel and other fuel products to cope with the anticipated demand.

“It’s certainly a big risk-on day, turbocharged by the strong expectations for weekend driving,” said John Kilduff, partner at New York energy hedge fund Again Capital.

“The Goldman forecast, of course, is being used tirelessly to advance the case for $80 oil, though we still need to see global travel open up completely to justify that. And the Iran talks will continue, and the additional they put on the market will matter, regardless what the skeptics think. So, I think we’ll give back some of these gains over the coming days as we see progress on those talks again.”

Goldman Sachs said its forecast for $80 Brent later this summer included a potential increase in Iranian oil exports.

If the sanctions are lifted on Iranian oil, an additional 500,000 to 2 million barrels could reenter the world market anytime between the next three to 18 months, those in the know say.

Sources familiar with Iran’s crude output currently estimate its production at around 2 million barrels daily.

The Islamic Republic has said previously that it could return “within months” to its peak oil production of nearly 4 million barrels a day once the sanctions are lifted. Many doubt that.

But analysts broadly agree on one thing: the additional crude flows from Iran, whenever it comes, will force a reconfiguration of global oil supply that could be more bearish than bullish — especially with questions about demand resurfacing after new coronavirus flare-ups in No. 3 oil consumer India.

Oil Jumps 4% on Cocktail of Risk-on Trades and Memorial Day Bets