OPEC+ shockwaves drive up oil
LONDON, March 5, 2021 – Oil prices pushed higher Friday, continuing the sharp gains of the previous session, following the decision of the Organization of the Petroleum Exporting Countries and allies not to increase output in April.
The group, known collectively as OPEC+, approved the continuation of current curbs on production at its ministerial meeting on Thursday, with small exemptions for Russia and Kazakhstan, in the face of rising oil prices over the last couple of months.
The next OPEC+ meeting will take place on April 1, where May’s production levels will be discussed.
US crude futures traded 1.5% higher at $64.81 a barrel, while the international benchmark Brent contract rose 1.7% to $67.85. Both contracts surged more than 4% on Thursday,
The cartel approved the continuation of current production levels for April at its ministerial meeting on Thursday, going against wide expectations that it would relax the curbs. Meanwhile, Russia and Kazakhstan won exemptions from the curbs.
The next OPEC+ meeting will take place on Apr. 1, where may production levels will be discussed.
Top oil exporter Saudi Arabia also pledged to maintain its 1 million barrel-a-day voluntary production cut, with Saudi Energy Minister Prince Abdulaziz bin Salman continuing to urge caution. He argued that erring on the side of caution would be better than a badly timed supply increase, RBC Capital Markets said in a note.
The decision appears to be a victory for Saudi Arabia, which advocated keeping the supply cuts to support prices. However, there are increasing worries that the rally in crude oil prices, thanks to OPEC+ supply cuts and global Covid-19 vaccine rollouts, could lead to increased drilling activity by US shale explorers and increase global inflation.
However, the RBC Capital note also added that reviving shale production does not appear to be a principal concern.
On the fuel demand part, investors were cheered by signs of a resurgence in demand, especially in Asia. China reported that gasoline and diesel consumption extended its run above pre-Covid-19 levels in 2021, as factory activity returned at a faster pace than expected and an infrastructure building program accelerated following February’s Lunar New Year holiday.
In addition to the shockwaves from the OPEC+ decision, investors are also looking to China’s National People’s Congress, where the country’s new five-year plan will be unveiled. The country set a conservative economic growth target of above 6% for 2021, below economists’ forecast, and outlined ongoing fiscal support with prudent monetary policy as the congress opened earlier in the day.
First published on Investing.com