(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 return some barrels 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.
See also: OPEC+ Faces Calls to Cool Oil Market Frenzy With Extra Barrels
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.
At stake in the meeting is how much OPEC+ output gets restored and how fast, 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.
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