Oil climbs above $60 as OPEC+ faces critical decision on supply

Oil rose above $60 a barrel in New York ahead of a high-stakes OPEC+ policy meeting, with producers debating whether to extend deep supply curbs to drain stockpiles and safeguard a rally.

West Texas Intermediate advanced 1.9 per cent after tumbling over the previous two sessions. Prices fell Wednesday after an OPEC+ panel meeting ended without a policy recommendation, while a fresh lockdown in France stoked demand concerns. Still, positive signs from the US, as well as parts of Asia, highlight the complexity of the decision facing OPEC+ ministers later on Thursday.

As well as the patchy recovery in consumption, there are political pressures too, with the US energy secretary on Wednesday calling her Saudi counterpart to highlight the importance of “affordable energy.”

While the rollout of coronavirus vaccines and supply curbs have underpinned a fourth quarterly gain for crude, the rebound has faltered in recent weeks on concern that near-term consumption is at risk, particularly in Europe. Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, pointed this week to the market’s recent volatility as “a reminder of the fragility facing economies and oil demand.”

“OPEC+ is likely to focus above all on Europe, where several countries have announced additional mobility restrictions,” said Eugen Weinberg, head of commodities research at Commerzbank. “If Saudi Arabia were also to leave its voluntary production cuts in place, this would demonstrate unity within the producers’ alliance and its commitment to combat any surpluses that might arise.”

Prices

• WTI gained 1.9 per cent to $60.30 a barrel at 10.11am London time
• Brent for June settlement climbed 1.7 per cent to $63.78

Several options are up for discussion at Thursday’s talks, including maintaining existing production cuts or making a modest increase, delegates said. Saudi Arabia could succumb to pressure from Russia and the United Arab Emirates, which appear more eager to restore production, according to Helima Croft, chief commodities strategist at RBC Capital Markets.

Data from the US and Asia do bolster the case for OPEC+ to loosen the taps. Americans are driving and flying the most since the pandemic began, US refineries are processing the most oil since early March last year, and the nation’s stockpiles have shrunk for the first time in six weeks.

In Asia, Japan’s large manufacturers have turned optimistic for the first time since the fall of 2019, while South Korea’s exports have risen the most in more than two years. Indian gasoline sales topped 2019 levels in March, though diesel sales were lower.

Elsewhere, however, the picture is weaker. In Europe, France’s four-week lockdown begins on Saturday, while Italy and Germany have extended partial shutdowns. The Canadian province of Ontario, home to Toronto and the capital Ottawa, will be locked down for 28 days, CBC News said. And in South America, Brazil detected a new Covid-19 variant as it again saw record deaths.

“Sentiment is very negative right now, given all the demand concerns, and the most bullish case has probably been priced in,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a Bloomberg television interview.