Oil falls ahead of OPEC+ Meeting to set new output levels
Oil prices plunged as the US dollar pared losses ahead of a key OPEC+ meeting scheduled on March 4 that may return more oil supply back to a fast-tightening market.
A sell-off in bond markets lifted the US dollar, making dollar-priced oil more expensive for holders of other currencies. Futures in New York stock exchange declined for a second straight session Monday, falling to the lowest in over a week.
The Organization of the Petroleum Exporting Countries plus Russia (Opec+) gathers on Thursday and is expected to loosen the taps after prices got off to their best ever start to a year. But it is still not clear how robustly the alliance intends to act, with the Saudi Arabia energy minister Prince Abdulaziz bin Salman calling for producers to remain “extremely cautious.”
Opec+ is now called to decide how much output gets restored with current reductions amounting to over 7 million barrels a day, or 7% of global supply. The coalition will choose whether to revive a 500,000-barrel tranche in April, and in addition, whether the Saudis confirm an extra 1 million barrels they’ve taken offline will return as scheduled.
Despite price declines, experts says that both Brent and WTI are on track for monthly gains of about 20% on supply disruptions in the US and optimism over demand recovery on the back of COVID-19 vaccination programmes.
Investors are betting on the market that next Opec+ meeting will result in more supply returning to the market.
“The originally planned [easing of cuts] would mean an increase in supply of 2.25-million barrels per day (bpd) compared to March levels,” HSBC said in a note.
“We think market fundamentals could probably just about absorb such an amount in quarter two — if demand recovers enough — but an announcement of an immediate increase on this scale would risk spooking the market badly.”
Analyst also pointed out that US crude prices are facing additional pressure from the loss of refinery demand after several Gulf Coast oil extraction facilities were shuttered during the winter storm last week. It was estimated that refining capacity of about 4-million bpd- that is currently shut – could resume on March 5, though there is risk of delays, analysts at JPMorgan said in a note this week.