Oil swings near $63 as OPEC+ bets market can absorb more supply

Oil swung between gains and losses after OPEC+ confirmed it would proceed with plans to add more barrels to the market, despite a virus resurgence in some regions including India clouding the demand outlook.

Futures in New York traded near $63 a barrel after advancing the most in almost two weeks on Tuesday. An OPEC+ committee agreed that the alliance should press ahead with its road map for increasing supply over the next three months. The coalition raised its estimates for demand growth this year on Monday, while BP also pointed to signs of a robust recovery.

Oil demand is expected to post the biggest ever jump over the next six months as vaccination rates surge in Europe, according to Goldman Sachs Group, which reiterated its forecast for global benchmark Brent crude to reach $80 a barrel during the third quarter of this year.

The global oil market recovery is being driven by China and the US, with positive signs emerging from parts of Europe. An accelerating vaccination program is expected to increase mobility and consumption further, although crude prices have whipsawed near $60 a barrel recently as Covid-19 flare-ups in India and Brazil raised concerns about near-term demand.

OPEC+ will skip its scheduled ministerial meeting on Wednesday after sticking with its plan to hike supply by 2 million barrels a day over the next three months, according to delegates. The next gathering will be in early June, a delegate said, asking not to be identified as the information isn’t public.

“Oil demand has yet to recover to pre-virus levels and we see room for further tightening of the oil supply balance in the second half,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “The biggest swing driver for oil right now is the state of coronavirus outbreak in India.”

Prices

• West Texas Intermediate for June delivery slid 3 cents to $62.91 a barrel on the New York Mercantile Exchange at 12.02pm Singapore time after climbing 1.7 per cent on Tuesday.
• Brent for June settlement was unchanged at $66.42 on the ICE Futures Europe exchange after adding 1.2 per cent in the previous session.
• The prompt timespread for Brent was 57 cents a barrel in backwardation – a bullish market structure where near-dated contracts are more expensive than later-dated ones. That’s down from 69 cents at the end of last week.

Oil demand is expected to expand by 5.2 million barrels a day over the next six months, which would be 50 per cent more than the next largest increase over the same time frame since 2000, Goldman Sachs said in a note. Commodity markets have looked through a sharp rise in Covid-19 cases in India, the bank added.

The American Petroleum Institute, meanwhile, reported US crude stockpiles expanded by 4.32 million barrels last week, according to people familiar with the data. If confirmed by government figures Wednesday, it would be a second straight weekly gain. The API reported a drop in gasoline inventories.