By Noah Browning
LONDON (Reuters) - A four-month rally in the oil futures price from below $40 a barrel to above $60 now is out of step with demand, analysts and traders say, with physical sales only expected to match supply later in 2021.
The price has surged since the start of November, buoyed by expectations of an economic recovery as governments promise more stimulus, producers rein in output and vaccine rollouts offer hope that the worst effects of the COVID-19 pandemic are over.
But physical demand for crude from refiners and other end users has yet to catch up, with cargoes to key markets like China broadly trading at lower prices amid sluggish sales.
"The current rally is not justified by oil market fundamentals, therefore it must be driven by financial investors. They are basically borrowing physical demand from the second half of the year," said PVM Oil analyst Tamas Varga.
J.P. Morgan said the benchmark Brent futures contract, which neared $68 a barrel last week before slipping to about $64 on Thursday, was "running two quarters ahead and $4 above what fundamentals warrant."
The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, will consider how to respond on Thursday, when ministers decide whether to increase output in April or keep existing curbs on production in place.
The International Energy Agency does not expect demand to catch up with supply until about the third quarter.
Buying has ebbed with refinery maintenance season timed for reduced energy consumption in spring, especially in China whose economy has fared better than many others during pandemic, remaining a bright spot for global fuel demand.
"The paper market would make you think there's strong physical demand, but there isn't. You can see that from the lower sale prices across the board," a Chinese crude trading source told Reuters.
Africa's second biggest oil exporter Angola assigns to China several crude cargoes each month on a contractual basis.
State trading firm Unipec this month re-offered for sale six out of 10 cargoes, but drew little interest on the open market.
Urals crude for Northwest Europe this week failed to find buyers at dated Brent minus $2.35 per barrel and CPC Blend has sold for minus $2.75 per barrel, putting the value of the Mediterranean grades at near their lowest in nine months.