Oil Up as Critical OPEC+ Meeting Looms

Oil Up as Critical OPEC+ Meeting Looms
Oil demonstrated its resilience in the week's opening session, rebounding from the biggest slump since November ahead of a key OPEC+ meeting.

(Bloomberg) -- Oil demonstrated its resilience in the week’s opening session, rebounding from the biggest slump since November ahead of a key OPEC+ meeting that may see some supply returned to a fast-tightening market.

Futures in New York rose toward $63 a barrel after losing 3.2% on Friday. The alliance gathers on Thursday and is expected to loosen the taps after prices got off to their best ever start to a year. But it’s unclear how robustly the group will act, with the Saudi Arabian energy minister calling for producers to remain “extremely cautious.” A weaker dollar also supported crude.

Oil’s recovery from the impact of the pandemic has been driven by Asian demand, as well as fiscal and monetary stimulus. Data Monday showed most key manufacturing economies gained ground last month, with China staying in expansionary territory. In the U.S., President Joe Biden’s $1.9 trillion relief plan moved closer to realization after passing the House of Representatives.

Saudi Arabia’s reductions, the improving demand outlook as vaccines are rolled out, and the growing popularity of commodities as a hedge against inflation have pushed oil higher this year. There has been a raft of bullish calls in recent weeks predicting the rally will continue as the producer response trails consumption, while maintenance in North Sea fields is set to reduce supply.

“The OPEC+ meeting is very important,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific. The “market could remain easily positive in the face of a modest increase in OPEC+ production. If there is a large increase, then it could dampen the outlook in the short term,” he said.

Prices:

  • West Texas Intermediate for April delivery gained 1.9% to $62.66 a barrel on the New York Mercantile Exchange at 7:41 a.m. in London
    • Most-active prices have rallied 29% this year
  • Brent for May settlement climbed 1.9% to $65.63 on the ICE Futures Europe exchange
  • The April contract fell 1.1% as it expired Friday

At stake in the meeting is how much OPEC+ output gets restored and at what pace, with current reductions amounting to just over 7 million barrels a day, or 7% of global supply. The 23-nation coalition will decide whether to revive a 500,000-barrel tranche in April, and in addition, whether the Saudis confirm an extra 1 million barrels they’ve taken offline will return as scheduled.

Brent’s prompt timespread was 72 cents a barrel in backwardation, a bullish structure with near-dated prices above later-dated ones. That compares with 25 cents at the start of February and a discount at the beginning of the year.

Related coverage:

  • The freeze-driven shuttering of core sections of the U.S. refining system isn’t all good news for rival plants in Europe. Down at the bottom of the barrel, losses are deepening.
  • Abu Dhabi’s de facto ruler, Crown Prince Mohammed Bin Zayed, has cemented his control over the emirate’s state energy company by becoming chairman of a newly-established board of directors.
  • Oman’s government is transferring its stake in one of the Middle East’s largest oil blocks to a newly-established energy firm as the cash-strapped sultanate looks to use the asset to raise debt.
  • If there’s one part of India’s economy that’s been relatively unscathed by the impact of Covid-19 it’s the vast rural hinterlands. And the country’s biggest fuel retailers are taking notice.

--With assistance from Andrew Janes.

© 2021 Bloomberg L.P.



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