Brent trades above $45 for the first time in more than two months

UBS sees a "moderate production response" from US shale in the second half of the year and a "stronger" one in 2022. Reuters

Brent, the international benchmark for crude, hit $45 per barrel for the first time in 10 weeks on Wednesday as energy markets continued to rally following news of an effective vaccine against Covid-19 and a crude inventory draw in the US.

Brent, under which two-thirds of the world’s oil is traded, reached $45.29 per barrel before falling back slightly to trade at $44.88 at 3.22pm UAE time. The benchmark was up 2.91 per cent over the previous day’s settlement. West Texas Intermediate, which tracks US crude, was up 3.22 per cent and was trading at $42.69 per barrel.

The industry-funded American Petroleum Institute reported that US crude stocks fell 5.15 million barrels last week, with gasoline and diesel inventories also declining, according to sources cited by Bloomberg. The US government is set to release its official data on inventories tomorrow.

The rally in crude prices comes amid higher supply from Libya, which has steadily ramped up production past 1.1 million barrels per day following the easing of a force majeure.

Meanwhile, Iran, which has seen its oil exports curtailed under the US’ ‘maximum pressure’ strategy is said to have averaged sales of 700,000 bpd this year, according to the country’s head of budget and planning.

"The average oil sales so far this (Iranian) year have been 600,000 to 700,000 bpd," Hamid Pourmohammadi told the Fars news agency. The Iranian year began on March 20, 2020.

The outgoing Donald Trump administration, which has taken a hardline against Iran and has scrapped the previous administration’s nuclear deal, is expected to usher in a raft of sanctions against Tehran during the transition period.

President-Elect Joe Biden, who served in the Barack Obama administration and helped broker the Joint Comprehensive Plan of Action in 2015 that allowed Iran to access global financial markets in exchange for nuclear curbs, is expected to revive the deal.

The oil markets have responded positively to Mr Biden's election  and his administration is likely to pursue a greener agenda, curtailing the growth of shale.

The markets were sitting on a “wobbly chair”, noted UBS commodity analyst Giovanni Staunovo.

With France entering its second lockdown and cases of Covid-19 surging past 10 million in the US, mobility restrictions will remain in place denting oil demand.

"Libyan oil production is already above 1mbpd. With a smaller market deficit in 4Q20, these factors [mobility restrictions] will likely keep oil prices vulnerable to renewed setbacks in the short term,” he said.