(Bloomberg) — Oil advanced toward $60 a barrel ahead of a high-stakes OPEC+ policy meeting, with producers set to debate whether to extend deep, pandemic-driven supply curbs to drain stockpiles and safeguard a rally.
West Texas Intermediate rose 1.2% after tumbling almost 4% over the previous two sessions. Prices fell on Wednesday after an OPEC+ panel meeting ended without a policy recommendation, and France announced that it will start a month-long lockdown. Still, positive signs from the U.S. as well as parts of Asia highlight the complexity of the decision facing OPEC+ ministers later Thursday.
While the rollout of coronavirus vaccines and supply curbs helped crude to cap a fourth quarterly gain on Wednesday, the rally has faltered in recent weeks on concern about risks to near-term consumption, particularly in Europe. 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.”
See also: OPEC+ Focuses on Fragile Demand Before Talks on Oil Output
”Given the more recent wobble in prices, along with a rise in Covid-19 cases in some regions, we expect that the group will once again take a cautious approach, and look to roll over current cuts for one more month,” said Warren Patterson, head of commodities strategy at ING Group.
Marshaled by leaders Saudi Arabia and Russia, OPEC+ is debating whether to revive part of the 8 million barrels of daily output — about 8% of global supply — it is withholding. While the alliance is widely expected to maintain curbs for at least another month, there’s still scope for surprises at the virtual meeting.
Saudi Arabia could succumb to pressure from Russia and the United Arab Emirates, who appear more eager to restore production, according to Helima Croft, chief commodities strategist at RBC Capital Markets. The possibility of increasing output is among the options that may be considered, according to two delegates who asked to speak anonymously.
This time, OPEC+ will most likely roll over existing curbs, or may even decide on a deeper cut, despite key pricing and stockpile figures suggesting there’s room to boost supplies, Deutsche Bank AG’s Michael Hsueh said in a note.
Data from the U.S. and Asia do bolster the case for OPEC+ to loosen the taps. Americans are driving and flying the most since the pandemic began, U.S. refineries are processing the most oil since early March last year, and the nation’s stockpiles shrank for the first time in six weeks. In Asia, Japan’s large manufacturers have turned optimistic for the first time since the fall of 2019, while South Korea’s exports rose the most in more than two years in March.
Elsewhere, however, the picture is weaker. In Europe, France’s four-week lockdown begins on Saturday, while Italy and Germany have extended partial shutdowns. The Canadian province of Ontario, home to Toronto and the capital Ottawa, will be locked down for 28 days, CBC News said. And in South America, Brazil detected a new Covid-19 variant as it again saw record deaths.
Brent’s prompt timespread was 47 cents in backwardation, a bullish pattern with near-term prices trading above those further out. That compares with 67 cents at the start of March.
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2021 Bloomberg L.P.
