Oil futures rose Wednesday, finding support following a report that the Organization of the Petroleum Exporting Countries and its allies were considering rolling over production cuts into April instead of easing them.
Prices continued to climb after the Energy Information Administration on Wednesday reported a hefty increase of more than 21 million barrels in last week’s U.S. crude inventories, along with significant declines in petroleum-product inventories.
“Despite the whopping crude build, the market is distracted ahead of [Thursday’s] OPEC+ meeting,” amid some expectations that the group may not unwind production cuts as expected, Matt Smith, director of commodity research at ClipperData, told MarketWatch.
Traders had been looking for the group of major producers, known as OPEC+, to ease output curbs in April, allowing production to rise by around 500,000 barrels a day. Reuters on Wednesday reported that some OPEC+ members had argued for maintaining existing curbs into April amid worries over fragile demand.
The report said it was unclear whether Saudi Arabia, which unilaterally cut production 1 million barrels a day in February and March, would extend its reduction. Meanwhile, Bloomberg reported that OPEC+ was poised to go ahead with production increases.
In the “game of back and forth, now I’d expect any increase above 500,000 [barrels a day] to be an incremental negative for oil,” said Stephen Innes, chief global market strategist at Axi, in a note.
“While Saudi may choose to delay the return of their 1mb/d unilateral cut, it seems likely that the high oil price will embolden Russia and others to push for the return of more than 500,000 b/d, so I think there’s a greater probability of tomorrow’s OPEC+ meeting being negative as opposed to a positive catalyst,” he said.
West Texas Intermediate crude for April delivery CL.1,
Prices are “lofty and due for a slight pullback, but the final outcome of the OPEC meeting will dictate the next direction of the energy markets,” said Tariq Zahir, managing member at Tyche Capital Advisors.
He expects Saudi Arabia to halt its voluntary output cut and OPEC+ to slightly ease production curbs as Russia and other OPEC+ countries want to take advantage of the recent push higher in prices.
Oil prices continued to trade higher after data from the EIA showed that U.S. crude inventories jumped up by 21.6 million barrels for the week ended Feb. 26.
On average, analysts forecast a climb of 1.3 million barrels, according to a survey by S&P Global Platts. The American Petroleum Institute on Tuesday reported a nearly 7.4 million-barrel climb.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub rose by 500,000 barrels for the week.
Oil production rebounded last week, while refinery runs plunged much lower, resulting in a behemoth 21.6 million-barrel build,” said Smith. “U.S. shale producers have been able to ramp back up activity, while U.S. Gulf Coast refiners distinctly have not.”
“Such a drop in refining activity — to record lows — has resulted in humongous draws to both gasoline and distillates,” he said. “The unprecedented winter storm in Texas has resulted in refining activity being pushed to a record low, with runs dropping below 10 million barrels per day for the first time in the EIA’s weekly records, going back to 1982.”
The EIA reported that gasoline supply was down 13.6 million barrels, while distillate stockpiles were down 9.7 million barrels for the week. The S&P Global Platts survey had forecast supply declines of 2.9 million barrels for gasoline and 3.9 million barrels for distillate inventories.
On Nymex, April gasoline RBJ21,
Natural-gas futures edged higher, ahead of the EIA’s weekly update on supplies of the fuel due Thursday. The April contract NGJ21,
