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Oil Prices Rally on Reports OPEC Will Not Ease Production Cuts

Crude oil futures are rallying midweek as industry observers begin watching this week’s OPEC meeting. After it was widely speculated that Saudi Arabia would ease its production cuts and the Organization of the Petroleum Exporting Countries would start ramping up output, reports suggested that the cartel would take a different approach for the next two months. Oil prices popped on the reports.

April West Texas Intermediate (WTI) crude oil futures surged $1.10, or 1.84%, to $60.85 per barrel at 13:34 GMT on Wednesday on the New York Mercantile Exchange. Crude prices have weakened about 4% in the last week, mainly due to expectations of greater output. Still, WTI prices are up 26% year-to-date.

Brent, the international benchmark for oil prices, is testing $64 in the middle of the trading week. May Brent crude futures advanced $0.99, or 1.58%, to $63.69 a barrel on London’s ICE Futures exchange. Brent has also tumbled 4% in the last week on OPEC worries, but it is still up 23% on the year.

Citing three sources close to the situation, Reuters is reporting that OPEC+ producers are likely to oppose increasing output. Instead, OPEC, Russia, and producing allies are thinking about rolling over production cuts from March into April.

That said, it is still unclear if Saudi Arabia would finish its voluntary easing or extend its output cuts. A document from OPEC+ experts that had been seen by the newswire recommended “cautious optimism” amid “the underlying uncertainties in the physical markets and macro sentiment, including risks from COVID-19 mutations that are still on the rise.” The document also noted that financial markets, rather than improving fundamentals, could have triggered the recent jump in prices.

Overall, OPEC anticipates that international crude demand would increase by 5.8 million barrels per day (bpd) this year to 96 million bpd. This is still below the 100 million bpd in demand from 2019.

Meanwhile, JP Morgan Chase stated that the oil market is facing a 500,000 bpd deficit. Therefore, the financial institution believes that it would make sense that markets, such as Russia, would support raising output.

So, where could prices be headed? Norbert Rücker, analyst at Swiss bank Julius Baer, told CNBC:

The fundamentals of the oil market suggest further strength as oil demand grows with the recovery and leisure and travel activity is likely to bounce. We see oil prices pushing temporarily above $70 by mid-year.

The US Energy Information Administration (EIA) will publish its weekly supply report on Wednesday. Analysts are projecting a crude inventory withdrawal of 928,000 barrels in the week ending February 26. The EIA is also penciling a drop of 2.3 million barrels in gasoline stocks and 3.305 million barrels in distillate supplies.

In other energy commodities, April natural gas futures edged up by $0.006, or 0.21%, to $2.881 per million British thermal units (btu). April gasoline futures rose $0.0074, or 0.38%, to $1.9438 per gallon. April heating oil futures advanced $0.0191, or 1.06%, to $1.8272 a gallon.

If you have any questions and comments on commodities today, use the form below to reply.

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Published under: Oil

Via Commodity News

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