By Barani Krishnan
Investing.com - Crude oil was headed for a fourth-straight monthly gain on Friday, despite a price drop on the day, intensifying the market’s challenge of keeping up with its phenomenal run as major producers Saudi Arabia and Russia head into a contentious producers meeting next week with different agendas.
The enlarged OPEC+ alliance of oil producers, banding the Saudi-led Organization of Petroleum Exporting Countries and allies steered by Russia, is to meet next Thursday to set output quotas for April. The previous meeting had ended in a face-saving compromise which allowed Russia and Kazakhstan to raise their output, while Saudi Arabia offset the net increase in world supply with a temporary 1 million barrel a day cut of its own.
The kingdom pledged to make these extra curbs only in February and March, but some see signs that could change as the negotiations get underway.
Bloomberg reported earlier this week that Riyadh was publicly urging fellow members to be “extremely cautious,” despite crude prices rebounding to a one-year high. In private, the kingdom has signaled it would prefer that the group broadly holds output steady, delegates said. Moscow, on the other hand, is indicating that it still wants to proceed with a supply increase.
“To stop and potentially reverse slightly the meteoric rise in oil, I'd expect a multi-million barrel increase may be needed to push oil back to $50,” said GasBuddy analyst Patrick de Haan. “With recovering demand, feels like the market probably could use 2+ (million b/d) increase.
“Anything under 1 is too low and risks oil breakout,” he added.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, traded at $62.09 a barrel by 1:22 PM ET (18:22 GMT). That accounted for a $1.44, or 2.2%, drop on the day. But for the week, WTI was up almost 5%. For the month, it was up nearly 19%, extending advances of around 8% in January, 7% in December and 27% in November. At current prices, WTI is also trading at levels last seen in January 2020, before the onset of the coronavirus pandemic that decimated the market for months.
London-traded Brent, the global benchmark for oil, traded $65. It was down $1.11, or 1.7% on the day. For the week, it was up around 3% and for the month, it was up 16%, extending gains of 8% in January, 9% in December and 27% in November.
A Reuters survey published on Friday forecast that Brent would likely average $59.07 per barrel in 2021. That was up from a Reuters forecast of $54.47 published last month, the biggest monthly revision in its polls going back until at least 2016.
The biggest risk to that scenario, in the short-term, appears to be that major producers will use soaring prices to relax their pact on output restraint. OPEC+ is currently keeping some 7 million barrels a day of oil off world markets.
Aided by a tighter supply situation in the United States and globally, oil has rallied without a meaningful correction over the past four months. Most technical analysts say the market is overbought. But oil bulls have routinely ignored such warnings, especially after last week’s huge snowstorm in Texas that severely disrupted production in the heartland of U.S. energy.
Prior to the Texas storm, the oil rally was sparked and sustained by a combination of factors.
It began with the November breakthrough in vaccines for the Covid-19. That was followed by OPEC leader Saudi Arabia’s announcement of deeper production cuts in January.
From there on, commodity-index linked buying of oil, sizable weekly drops in U.S. crude stockpiles and hopes for economic stimulus from the Biden administration have spurred gains.
* With additional reporting by Geoffrey Smith