Oil price strengthens ahead of Opec+ meeting
Futures rise above $49 before oil producers’ alliance meets to decide on February production levels
Oil rose for a fourth day on Monday, aided by a falling dollar, before oil cartel Opec and its alliance, which includes Russa (Opec+) alliance meets to decide whether it can keep lifting output as surging coronavirus infections smother the global energy demand recovery.
Futures in New York climbed past $49 a barrel after rising 0.6% last week. The alliance returned 500,000 barrels a day to the market in January and will meet on Monday to decide on production levels for February. The outlook for the first half is very mixed and there are still many downside risks to juggle, Opec secretary-general Mohammad Barkindo said at a meeting on Sunday.
The UK prime minister said tougher lockdown measures are likely to be needed in England, while Japan is considering imposing another state of emergency. The oil demand situation is better in China, however, where a frigid winter and power shortages are prompting factories to rush to install diesel generators. A gauge of Chinese manufacturing strength for December missed estimates, while a similar Indian measure increased slightly from the previous month.
The American crude benchmark has been trading near $48 a barrel over the past few sessions as the market weighs a shaky short-term energy demand outlook against an expected pickup later in the year once enough people have been vaccinated. Oil has also been supported by a weakening dollar, which boosts the appeal of commodities that are priced in the currency.
“Vaccine optimism versus a grim winter with regard to Covid’s grip in the western hemisphere has carried over into the new year,” said Vandana Hari, the founder of Vanda Insights in Singapore. She saw a 50-50 chance that Opec+ will increase output for February, noting that the alliance’s decision in December didn’t trigger a sell-off.
At a meeting on Sunday, several countries including Saudi Arabia sounded cautious about raising output in February, delegates said. Russia has said Opec+, which slashed output last year, can add another 500,000 barrels a day in February, while Riyadh has publicly kept its views under wraps.
Opec production rose by 190,000 barrels a day to 25.3-million barrels a day in December, with Libya driving the gain, according to JBC Energy. Angola, Iran, the United Arab Emirates, Venezuela and Algeria also boosted supply. Opec is forecasting crude oil demand will rise to 95.9-million barrels a day this year from 90-million in 2020.
Oil’s futures curve is reflecting the mixed short- and longer-term outlooks. Brent’s prompt timespread is just 1c a barrel in contango, a market structure where near-dated prices are cheaper than later-dated ones, indicating sentiment is fairly evenly poised between optimism and pessimism.
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