A downward correction in the crude oil market, after recovery of output and refinery operations on the Gulf Coast, was short-lived. Brent quotes rose 3.5% on Monday to $65 per barrel. On Tuesday, the rally continues and prices surpassed $66 per barrel. This is a new local high; oil prices have not been that high for about a year.

Oil prices extend their upside movement thanks to the broad recovery in commodity markets; where traders and investors are pricing in an increased pace of demand growth. This is due to expectations of global economic recovery and a new commodity "super cycle" which suggests a bull market in commodities can be in the early stages. The US Dollar dump seen on Monday after a brief respite last week also favors an upturn in the commodity markets.

There is growing consensus that the state of the oil market can quickly flip from a glut to a deficit. This is greatly facilitated by OPEC+ output curbs as well as expectations of a rebound in energy demand in the first quarter of 2021.

The rapidly decreasing oversupply in the market is reflected in price spreads for oil contracts with different times of delivery. For example, the Brent futures curve now has a concave shape (the so-called backwardation state). The behavior of the spread between the nearest and the next futures contract indicates acceleration of near-term market tightening – the price spread widened from 25 cents per barrel in early February to 90 cents in the third week of this month:

When prices for a futures contract with earlier expiration date trades higher than a futures contract with more distant maturity date it’s called backwardation. Obviously, price difference between contracts also reflects difference in demand for deliveries on that dates. Current state of the oil futures market indicates that near-term demand grows faster than medium-term and long-term demand.

Brent's 12-month spread rose to $7/bbl, the highest level since Feb 2020.

Oil prices ignore growing risk of technical pullback as seen in RSI staying in extreme zone above 70 points:

Long positions with shorter targets - $ 68-69/bbl remain justified thanks to brief correction last week which removed some concerns about parabolic growth. However medium-term longs definitely require some deeper pullback towards $60 area.

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