Oil traders remained cautious at the mid week trading session, as oil prices pulled back some of their gains. This is coming in spite of reports that a strong rebound in energy demand will continue.
At press time, Brent oil futures lost about 0.2% to trade around $61 a barrel.
Oil traders are now focusing on the rising COVID-19 caseloads amidst reports showing global oil stockpiles are shrinking, and there are expectations that U.S. supplies will also continue to drop.
Recent data from the American Petroleum Institute recorded a drop of 3.5 million barrels. Energy experts had earlier predicted a 1.340-million-barrel gain, while a 4.261-million-barrel drop was recorded during the past week.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on the macros holding oil prices around $60 per barrel.
“There is seldom one sole factor at play at any given time, whether it’s the oil curve offering up an attractive alternative in the chase for yield or oil contracts providing a favorable inflation hedge after all at every market street corner discussions around inflation protection continue to resonate.
A neat feature of the oil market is that it is cyclical. It does tend to gather momentum. And it rarely, if ever, settles into a comfortable equilibrium as we saw from overnight price action.
But it might become more apparent that OPEC sees US$60 as the low end of the price range that incentivizes sufficient new production capacity to the market offering attractive producer returns.
What to expect: Oil traders for the midterm will focus their attention on the March 4 OPEC+ meeting as a risk to the current view at a time energy experts expect Saudi Arabia’s unilateral Feb/Mar cuts to be rolled back.
Oil prices stay on course over successful rollout of COVID-19 vaccines
The Brtish-based oil contract, Brent crude surged by 0.46%, to trade at $62.99 a barrel, up from four days of losses.
Crude oil prices recorded early gains at the third trading session of the week. Oil traders are riding, on high hopes on progress made by COVID-19 vaccine rollouts in the world’s largest economy.
At the time of drafting this report, U.S. West Texas Intermediate (WTI) crude futures gained 0.3%, to $59.93 a barrel, partly recovering from the week losses.
Also the Brtish-based oil contract, Brent crude surged by 0.46%, to trade at $62.99 a barrel, up from four days of losses.
However, it’s fair to say the bulls were not yet in full control as recent price action suggested capped gains.
Some oil pundits anticipate energy demand recovery is on the right track partly to the successful rollouts of COVID-19 vaccines at emerged markets
That being said, Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on the rising oil stockpiles at the world’s largest economy, keeping oil bulls far from holding their grip,
“U.S oil stockpiles rose last week and product inventories fell sharply in a cause and effect of the cold snap that forced refiners to shut down Texas operations.
“The unexpectedly large crude inventories build hit at a worrying time for oil bulls. This is particularly significant on the rising possibility that OPEC major oil producers could agree to ease production cuts at a critical meeting this week amid concerns that demand will likely outstrip supply as the global vaccine-led recovery gathers a head of steam,” Innes said.
What to expect: Oil traders are anxiously waiting for Thursday’s OPEC+ meeting. It appears to represent some overdue caution going into the OPEC+ meeting as market participants continue to draw straws and attempt to gauge the likely rise in production.
Oil prices plunge on fears OPEC+ may increase Oil supply
Oil traders are becoming wary that OPEC+ will increase oil output and further distort the energy demand/supply dynamics.
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.
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.
Bottom line: energy pundits expect the all-important meeting this week in being one of the most interesting oil meetings in recent times, with Saudi Arabia urging producers to remain “extremely cautious”.
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