(Bloomberg) -- Oil rallied toward $65 a barrel after OPEC+ chose not to relax supply curbs even as the global economy pulls out of its pandemic-driven slump, confounding widespread expectations the group would loosen the taps.
West Texas Intermediate edged higher after being up as much as 1% earlier, building on Thursday’s 4.2% surge to the highest close since April 2019. The producer alliance agreed to hold output steady in April, while Saudi Arabia said that it will maintain its 1 million barrel-a-day voluntary production cut.
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Crude has soared this year, shepherded higher by OPEC+ restraining supplies and the vaccine-aided recovery in consumption that’s drained inventories. The group’s decision represents a victory for Riyadh, which has advocated for restraints to keep prices supported. However, the rally could spur drilling activity by U.S. shale explorers, and stoke global inflationary pressures.
The Organization of Petroleum Exporting Countries and its allies including Russia had been debating whether to restore as much as 1.5 million barrels a day of output. As part of the agreement, which was struck at a virtual meeting on Thursday, Russia and Kazakhstan were granted exemptions. The group’s next meeting is set for April 1 to discuss production levels for May.
Saudi Energy Minister Prince Abdulaziz bin Salman continues to urge caution in the face of uncertainties, insisting it is better to err on the side of prudence than opt for an ill-timed supply increase, RBC Capital Markets said in a note. Reviving shale production does not appear to be a principal concern, it said.
Evidence of the resurgence in demand continues to emerge, especially in Asia. Gasoline and diesel consumption in China has extended its run above pre-virus levels this year after the faster-than-expected return of factory activity and infrastructure building following the Lunar New Year holiday.
In addition to the fallout from the OPEC+ shock, investors will also look to commentary on Friday from China’s National People’s Congress, the nation’s biggest political meeting of the year. The gathering carries added significance this year with the Communist Party’s unveiling of its new five-year plan.
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