Crude Prices Jump as OPEC+ Agreed to Gradual Output Raise
Crude oil prices rose on Friday as the Organisation of Petroleum Exporting Countries (OPEC) and its allies known as OPEC+ agreed to incremental increase in production output for the month of May and July, thus reduce concerns over a supply glut.
The world’s major oil producers on Thursday agreed on the much-expected production policy by approving an incremental increase of up 350,000 barrels per day (bpd) in May and June and 400,000 bpd in July.
International benchmark Brent crude was trading at $64.67 per barrel Friday, rising 3.07% increase after closing Thursday at $62.74 a barrel.
Also, American benchmark West Texas Intermediate (WTI) was at $61.30 per barrel at the same time for a 3.61% increase after it ended the previous session at $59.16 a barrel.
Saudi Arabia’s additional output cut of 1 million bpd will also be gradually phased out with a production increase of 250,000 bpd in May, 350,000 bpd in June and 400,000 bpd in July.
The group’s collective production will reach 5.8 billion bpd in July.
Oil prices also found support after US President Joe Biden unveiled his $2 trillion plan to revitalize America’s badly aging infrastructure, with proposed tax hikes on corporations to cover the costs.
A rapid increase in the Eurozone manufacturing sector’s Purchasing Manager Index (PMI) in March reflected positively for oil prices by raising expectations that demand would similarly recover.
The positive Eurozone PMI results came despite concerns over surging COVID-19 cases in the region, which were followed by new restrictions, lockdowns and vaccination supply disruptions.
However, signaling a not-yet-recovered economy, the number of first-time unemployment claims in the US last week, the world’s largest oil consumer, rose by 61,000 to 719,000 contrary to market expectations of 675,000.
At the meeting on Thursday, the 23-members of (OPEC) and its allies, known as OPEC+, held the 15th Ministerial Meeting via videoconference.
Recalled that the oil producing group had been reducing production by 7.9 billion bpd, including an additional 1 million bpd cut by Saudi Arabia. However, based on the new agreement reach, OPEC+ will raise production by 350,000 bpd in May and June and 400,000 bpd in July.
However, Saudi Arabia’s additional production cut of 1 million bpd will also be gradually phased out with a production increase of 250,000 bpd in May, 350,000 bpd in June and 400,000 bpd in July.
As a result of the new output quota agreed to, the group’s collective production will reach 5.8 billion bpd in July, thus ease pressure on supply glut to keep oil prices strong.
Speaking to reporters after the meeting, Saudi Arabia’s Energy Minister Abdulaziz bin Salman underlined “cautiousness” and underlined that a full month of voluntary cuts of 350,000 barrels from OPEC+ was coming. The Saudi minister said the market has to test its psychological barrier to “see how things may turn out.”
Citing the group’s December deal, which Salman described as a “safeguard”, he said the group could also tweak or adjust 500,000 barrels either way in line with market conditions. The next meeting of OPEC and non-OPEC members is scheduled for April 28.
Crude prices jump more than 3%
By the time the meeting ended, oil prices gained more than 3%, although prices fluctuated during the meeting due to fears of an unexpected supply increase. Brent reached $65.16 per barrel Thursday, a 3.85% above Wednesday closed.
American benchmark West Texas Intermediate (WTI) was at $61.74 per barrel at the same time for a 4.36% increase after it ended the previous session at $59.16 a barrel.
In the Week…
Oil prices increased during the week ending April 2 mostly supported by the cautious approach of the world’s major oil producers in their decision to gradually increase output up to July in support of the market that is battling with a pandemic-induced supply glut.
International benchmark Brent crude traded at $64.67 on Friday, posting a 2.29% increase from Monday when price registered at $63.22 per barrel.
American benchmark West Texas Intermediate (WTI) traded at $61.30 at the same time on Friday, dropping 2.81% relative to $59.62 a barrel on Monday.
Oil markets started the week with news that a 400-meter-long container ship, the Ever Given, which ran aground across a single-lane stretch of the Suez Canal earlier last week, was successfully refloated on Monday.
The vessel halted transit in both directions on one of the world’s largest seaborne trade chokepoints for six days, causing supply disruptions in oil products.
Supply disruptions normally reflect negatively on oil prices but considering that it was only a few days of slowdown, it did not have a crucial impact on the market, which is already struggling with a supply glut due to pandemic-induced weak demand.
The uncertainty ahead of a key two-day meeting of the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, also put pressure on prices.
While the market expectation was a rollover of the existing production level for at least two months in line with current low oil demand, the group on Thursday agreed to incrementally increase production.
The 23-members of the OPEC+ group approved the increase of production of 350,000 barrels per day (bpd) in May and June and 400,000 bpd in July.
The group will cancel the production exception on both Russia and Kazakhstan that was in place and will gradually phase out Saudi Arabia’s additional production cut of 1 million bpd.
With the new output quota, the group’s collective production will reach 5.8 billion bpd in July.
Contributing to the upward trend in oil prices, US crude oil inventories defied expectations and declined last week, signaling a crude demand rebound in the US, the world’s largest oil consumer.
US commercial crude oil inventories fell by 900,000 barrels, or 0.2%, to 501.8 million barrels, relative to the market expectation of a build of 400,000 barrels, according to data released by the country’s Energy Information Administration (EIA) on Wednesday.
Crude Prices Jump as OPEC+ Agreed to Gradual Output Raise