Oil Swings as OPEC+ Agrees to Hike Output Amid Demand Puzzle
Investing.com — Crude prices swung from green to red and back on Thursday as traders sought to put a finger on oil demand from next month, after OPEC+ agreed to gradually increase production from May through July.
Members of the 23-nation oil producing alliance, meeting via a two-day video hook-up, agreed to raise output by 350,000 barrels per day in May and June, and 400,000 bpd in July.
Saudi Arabia was initially reported to be considering another 250,000 barrels per day of cuts in May, and 250,000 bpd in June, to provide continued support to the market. It terminated that idea after reaching a consensus with the other producers that an output hike not be a bad thing after all, especially if demand for crude spiked in the coming months, allowing the kingdom greater market share.
Since OPEC+ production cuts began a year ago, the Saudis have single-handedly led the reductions, conceivably allowing U.S. crude producers, who aren't a part of the alliance, to grow their oil exports at the expense of the kingdom. After weeks of remaining trapped at around 2.5 million bpd, U.S. crude exports jumped last week to 3.2 million bpd, data showed.
Iran, which officially remains under Trump-era sanctions banning exports of its oil, has also been shipping with immunity to China since President Joe Biden came into office in January, those with knowledge of the matter say.
While Iran is a founding member of the original OPEC cartel, it has never contributed a single barrel to the production cuts of the past year due to the Trump sanctions. Its stepped up exports to China could thus be depriving other producers trying to legitimately grow their oil sales.
"If anything, the Biden administration could move soon to do a deal with the Iranians that would officially remove the sanctions on them, and it might be prudent for the Saudis to try and increase their market share ahead of that," said Tariq Zahir, crude trader at New York macro fund Tyche Capital Advisors.
Goldman Sachs (NYSE:GS) global head of commodities research Jeff Currie, meanwhile, predicted that oil prices will hit $80 by the third quarter. Such lofty projections have often led to a crash instead.
Whatever the case, the diverse factors in play sent oil prices all over the place, with the market initially rallying more than $2 a barrel before dropping nearly $1 at one point.
By 1:15 PM ET (17:15 GMT), London-traded Brent, the global benchmark for crude, was up $1.24, or 2%, to $63.98. It catapulted to as high as $64.81 earlier and sunk to a session low of $62.45.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, was up $1.36, or 2.3%, to $60.52. WTI’s intraday high was $61.17 versus a low of $58.88.
Since April last year, the 23-nation OPEC+ — made up of the 13-member Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, and 10 non-OPEC nations steered by Russia — has withheld at least 7.0 million barrels per day of supply from the market.
Those cuts helped WTI rise from a little under $36 per barrel on Oct. 30 to just below $68 by March 8. Brent went from beneath $38 to just above $71 in that same stretch. But over the past fortnight, the two benchmarks have lost about 10% from those highs.
Russian Deputy Prime Minister Alexander Novak told Thursday’s OPEC+ meeting that global oil demand was anticipated around 5.0- 5.5 million bpd this year.
But while the alliance’s production cuts had slashed much of the Covid-19 related oil glut seen from March 2020, oil stocks remained above the 2015-2019 level, an OPEC+ document circulated at the meeting said.
The rollout of coronavirus vaccines and supply curbs had underpinned the oil rally of the past four months. But that’s fraying now on concerns that near-term consumption was at risk, particularly in Europe where France has announced a new month-long lockdown.
Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, pointed this week to the market’s recent volatility as “a reminder of the fragility facing economies and oil demand.”