Oil Rises With Stimulus Hopes Overshadowing Gloomy IEA Forecast

(Bloomberg) -- Oil extended gains in Asia to trade above $53 a barrel on expectations President-elect Joe Biden’s incoming administration will take steps to revive growth and energy demand in the world’s largest economy.

Futures in New York edged higher after closing up 1.2% on Tuesday. Treasury Secretary nominee Janet Yellen called on lawmakers to “act big” on stimulus, which could provide a boost to consumption while coronavirus vaccines continue to be rolled out. A weaker U.S. dollar is also increasing the appeal for commodities that are priced in the currency.

The optimism was tempered somewhat as the International Energy Agency cut forecasts for global oil demand as renewed lockdowns to contain the pandemic weigh on consumption. The Paris-based agency lowered its demand estimate for this quarter by 600,000 barrels a day in its monthly report.

The IEA’s gloomier outlook is a vindication of Saudi Arabia’s decision earlier this month to unilaterally cut production in February and March. That’s helped oil to keep rallying this year, along with a weak dollar and fund flows into commodities as a hedge against a likely acceleration in inflation this year.

However, the near-term trajectory of oil’s demand recovery has lost some momentum as governments tighten restrictions to curb the spread of Covid-19. In China, there are government calls for citizens not to travel over the Lunar New Year holidays, while much of Japan is under a state of emergency and several European nations are still locked down.

For 2021 as a whole, the IEA trimmed its demand forecast by 300,000 barrels a day. Global fuel consumption will increase by 5.5 million barrels a day this year, following an unprecedented collapse of 8.8 million a day in 2020, it said.