By Barani Krishnan
Investing.com — Crude prices swung from green to red and back on Thursday before settling up more than 2% as traders bought into OPEC+’s assurances that the global oil producing alliance could manage with higher output from May, despite questionable demand.
London-traded Brent, the global benchmark for crude, settled up $1.32, or 2.1%, at $64.86 per barrel. It reached as high as $64.95 earlier, from a session low of $62.45.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled up $2.29, or 3.9%, at $61.45. WTI’s intraday high was $61.58 versus a low of $58.88.
Members of the 23-nation OPEC+, meeting via a two-day video hook-up, agreed to raise output by 350,000 barrels per day in May and June, and 400,000 bpd in July.
Saudi Arabia was initially reported to be considering another 250,000 barrels per day of cuts in May, and 250,000 bpd in June, to provide continued support to the market. It terminated that idea after reaching a consensus with the other producers that an output hike may not be a bad thing after all, especially if demand for crude spiked in the coming months, allowing the kingdom greater market share.
Since OPEC+ production cuts began a year ago, the Saudis have single-handedly led the reductions, conceivably allowing U.S. crude producers, who aren't a part of the alliance, to grow their oil exports at the expense of the kingdom.
After weeks of remaining trapped at around 2.5 million bpd, U.S. crude exports jumped last week to 3.2 million bpd, data showed.
U.S. oil production also rose last week to 11.1 million barrels daily, suggesting that American energy firms were responding positively to crude prices trading at $60 per barrel or more. A daily production of 11 million barrels or lower had been the norm for the United States over the past few months.
The rise in U.S. crude production has been in tandem with the increase in the US oil rig count, as drillers put more rigs to work to extract additional supply. As of Friday, the rig count, which is a measure for future production, stood at 337. That was up 193, or 80%, from an August record low of 244.
Iran, which officially remains under Trump-era sanctions banning exports of its oil, has also been shipping with immunity to China since President Joe Biden came into office in January, those with knowledge of the matter say.
While Iran is a founding member of the original OPEC cartel, it has never contributed a single barrel to the production cuts of the past year due to the Trump sanctions. Its stepped up exports to China could thus be depriving other producers trying to legitimately grow their oil sales.
"If anything, the Biden administration could move soon to do a deal with the Iranians that would officially remove the sanctions on them, and it might be prudent for the Saudis to try and increase their market share ahead of that," said Tariq Zahir, crude trader at New York macro fund Tyche Capital Advisors.
Saudi Oil Minister Abdulaziz bin Salman seemed to acknowledge the weight of Iran’s role in the matter when he told reporters after the OPEC+ meeting that once Iran returns to pre-sanctions output, “we may remove the limit” on production.
Goldman Sachs (NYSE:GS) global head of commodities research Jeff Currie, meanwhile, predicted that Brent will hit $80 a barrel by the third quarter. Such lofty projections have often led to a crash instead.
Whatever the case, the diverse factors in play sent oil prices all over the place on Thursday, with the market rallying more than $2 a barrel, after dropping nearly $1 earlier.
Since April last year, OPEC+ — made up of the 13-member Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, and 10 non-OPEC nations steered by Russia — has withheld at least 7.0 million barrels per day of supply from the market.
Those cuts helped WTI rise from a little under $36 per barrel on Oct. 30 to just below $68 by March 8. Brent went from beneath $38 to just above $71 in that same stretch. But over the past fortnight, the two benchmarks have lost about 10% from those highs.
Russian Deputy Prime Minister Alexander Novak told the OPEC+ meeting that global oil demand was anticipated around 5.0- 5.5 million bpd this year.
But while the alliance’s production cuts had slashed much of the Covid-19 related oil glut seen from March 2020, oil stocks remained above the 2015-2019 level, an OPEC+ document circulated at the meeting said.
The rollout of coronavirus vaccines and supply curbs had underpinned the oil rally of the past four months. But that’s fraying now on concerns that near-term consumption was at risk, particularly in Europe where France has announced a new month-long lockdown.
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.”