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Oil Drops on Pre-OPEC Jitters of Higher Output

Published 03/01/2021, 03:00 PM
Updated 03/01/2021, 03:02 PM
© Reuters.

© Reuters.

By Barani Krishnan

Investing.com - It’s hitting the market as expected — pre-OPEC jitters — and only the Saudis and Russians can decide if they want to calm these before the week rolls over, to allow the rally in oil to continue without a breather.

Crude prices fell more than 1% on Tuesday as traders feared that the OPEC+ alliance of oil producers will almost certainly decide on a production hike for April onwards when it meets this Thursday. 

Popular opinion is that the group — which bands the Saudi-led Organization of Petroleum Exporting Countries with non-OPEC-member allies steered by Russia — will agree to a 500,000 barrel-per-day rise that doesn’t rock the boat in already treacherous Covid-19 recovery waters.

Yet, there was speculation swirling that the Russians — always seen as more eager to roll out barrels than the Saudis in their fragile four-year pact — might want a larger hike, possibly closer to 1.0 million bpd. That naturally weighed more on the market than expected, handing oil bears another break lower since Friday.

“The problem for oil bulls at the moment is the uncertainty around the OPEC+ decision at the end of this week,” said Adam Button, markets’ commentator on ForexLive. “They're going to hike production (by) at least 500,000 bpd but beyond that it's tough to estimate.” 

Button believes the Saudis would also want to pump more when their current voluntary cut of 1.0 million bpd expires in April. “At the same time, they all have to be happy with higher prices and won't want to bust them $6-8 lower.”

Oil prices initially rallied on Monday on optimism over the Biden’s administration’s $1.9 trillion Covid-19 stimulus relief passing its first Congress test — the House of Representatives. Worries over OPEC outcomes eventually pulled the market down.

Another damper was data from market intelligence firm Genscape showing a build of 497,014 barrels at the Cushing, Oklahoma storage hub that takes delivery of physical oil delivered against WTI contracts. 

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down 86 cents, or 1.4%, at $60.64 per barrel. It was WTI’s second straight session in the red, leaving it down a cumulative 4.6% since Thursday’s last positive session.

Notwithstanding the drop of the past two sessions, the U.S. crude benchmark has had a heady run with few stops over the past four months, gaining a net of almost 70% between the end of October and the close of February.

London-traded Brent, the global benchmark for oil, settled down 77 cents, or 1.1%, at $63.69. Brent has also lost a cumulative 3.7% in the past two sessions. Over the past four months though, it has rallied 72%.

The previous OPEC+ meeting in January 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.

A year ago, the Saudis and Russians had their most acrimonious meeting ever on production output, resulting in Riyadh embarking on a maximum output campaign at the height of the Covid-19 outbreak that took WTI to a historic negative pricing of -$40 per barrel. Since the two sides patched up in May, OPEC+ has been withholding at least 7.0 million bpd from the market daily. 

 

Latest comments

Produce more for a few weeks and then shut down the line for a few weeks and then open up the omg we all know that its price fixing. Just go out and test drive a Tesla its free.
Nothing is free.
what did you think about WTI price for the ahead days, i am in trouble loosin a lot of money seein the graphic going down and down 🙈
Biden will cut WTI off at the knees and the home of the free will pay more at the pump....$3 at the pump within the next 30 days. $4 by Summer. The Dems are in charge and you dont need a crystal ball.
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