Oil prices lost more than a percent at the second trading session of the week. Oil traders are virtually going to extend short on concern that OPEC may agree to increase global supply in a meeting this week and Chinese demand may be dropping.

At the time of writing this report, Brent crude dropped by 1.2%, to trade at $62.91 after losing 1.1% in the past day. U.S. West Texas Intermediate (WTI) crude dropped by 1.2%, to trade at$59.90 a barrel, having lost 1.4% on Monday.

Oil traders are becoming wary that OPEC and its allies, a group often referred to as OPEC+, will increase oil output and further distort the energy demand/supply dynamics.

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The group meets is scheduled to hold on Thursday as discussions might include allowing as much as 1.5 million barrels per day of crude oil back into the market.

Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics explained why the OPEC+ meeting matters most to many oil traders.

“Constructive oil market fundamentals have blown slightly off course ahead of the OPEC + meeting on Thursday as oil prices took to the plunge pool overnight, with Brent back to the soft US$63 handle after trading as high as $66.82 only last Thursday.

“Commodities were mostly weak overnight as the dollar regained a bit of ground. OPEC+ will meet this Thursday, and expectations are that despite Saudi Arabia’s call for caution, most members will push for an increase in output,” Innes stated.

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Bottom line: energy pundits expect the all-important meeting this week in being one of the most interesting oil meetings in Q1, with Saudi Arabia urging producers to remain “extremely cautious”.

Oil prices rose for a fourth straight month, despite their heavy plunge at the last trading session of the month.

British-based oil contract, Brent crude, which is the international benchmark for oil, settled at $64.42, down 3.7% on the day. For the week, it however rallied up by 2.5%. For the month, it was up 15%, extending gains in January, 9% in December, and 27% in November.

• Brent crude also hit a 13-month high of $66.81 in February. Oil traders will now be looking at the all-important meeting led by the Organization of Petroleum Exporting Countries with allies steered by Russia, which is to meet in the coming days to set output quotas for April.
• The Saudis had contributed massively in supporting crude oil prices last month when they pledged to make these extra curbs only this month and March, but some see signs that suggest a change in such status quo.

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Saudi Arabia, the leading oil producer after the United States, is OPEC’s most important producer as it has proven reserves equivalent to 221.2 times its annual needs. This means that, without Net Exports, there would be about 221 years of oil left.

That said, OPEC has 70% of the world’s proved crude oil reserves. Venezuela leads the title for the highest crude oil reserves with 304 billion barrels, followed by Saudi Arabia with 298 billion barrels.

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave insightful macros that could weigh on oil prices in the short term.

“Stronger US dollar, especially against Asia EM and higher bond yields, lead to the selling of long-duration assets. And given the massive overweight of “long duration, infinite growth tech” at the index level, stocks are capitulating.

“And the domino effect is starting to hit commodities like oil triggered by a correction in the reflation trade due to higher US yields that are becoming a significant source of market volatility.

“Next week’s OPEC+ meeting has more potential to be damaging than a positive catalyst given the optimism now priced into oil and the likelihood the group takes steps that could prompt a round of profit-taking,” Innes stated.

What to expect

Still, oil traders anticipate such corrections are likely to be short-lived given evidence of an ongoing demand rebound and the likelihood that oil markets remain tight this year.