Oil demonstrated its resilience in the week’s opening session, rebounding from the biggest slump since November ahead of a key OPEC+ meeting that may see some supply returned to a fast-tightening market. Futures in New York rose toward $63 a barrel after losing 3.2% on Friday. The alliance gathers on Thursday and is expected to loosen the taps after prices got off to their best ever start to a year. But it’s unclear how robustly the group will act, with the Saudi Arabian energy minister calling for producers to remain “extremely cautious.” A weaker dollar also supported crude.
Saudi Arabia’s reductions, the improving demand outlook as vaccines are rolled out, and the growing popularity of commodities as a hedge against inflation have pushed oil higher this year. There has been a raft of bullish calls in recent weeks predicting the rally will continue as the producer response trails consumption, while maintenance in North Sea fields is set to reduce supply.
“The OPEC+ meeting is very important,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific. The “market could remain easily positive in the face of a modest increase in OPEC+ production. If there is a large increase, then it could dampen the outlook in the short term,” he said.
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At stake in the meeting is how much OPEC+ output gets restored and at what pace, with current reductions amounting to just over 7 million barrels a day, or 7% of global supply. The 23-nation coalition will decide 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.