Oil Posts 4th Monthly Gain Before Contentious OPEC+ Meeting By

© Reuters.

By Barani Krishnan – Crude oil markets rose for a fourth straight month, despite a price drop Friday, intensifying the challenge of keeping up with their phenomenal run as Saudi Arabia and Russia head into a contentious producers meeting next week with different agendas.

The enlarged OPEC+ alliance of oil producers, banding the Saudi-led Organization of Petroleum Exporting Countries with allies steered by Russia, is to meet next Thursday to set output quotas for April. The previous meeting had ended in a which allowed Russia and Kazakhstan to raise their output, while Saudi Arabia offset the net increase in world supply with a temporary 1 million barrel a day cut of its own.

The kingdom pledged to make these extra curbs only in February and March, but some see signs that could change as the negotiations get underway.

Bloomberg reported earlier this week that Riyadh was publicly urging fellow members to be “extremely cautious,” despite crude prices rebounding to a one-year high. In private, the kingdom has signaled it would prefer that the group broadly holds output steady, delegates said. Moscow, on the other hand, is indicating that it still wants to proceed with a supply increase.

“To stop and potentially reverse slightly the meteoric rise in oil, I’d expect a multi-million barrel increase may be needed to push oil back to $50,” said GasBuddy analyst Patrick de Haan. “With recovering demand, feels like the market probably could use 2+ (million b/d) increase.

“Anything under 1 is too low and risks oil breakout,” he added.

New York-traded , the benchmark for U.S. crude, settled Friday’s trade at $61.50 a barrel, down $2.03, or 3.2%, on the day. But for the week, WTI was up almost 4%. For the month, it was up nearly 18%, extending advances of around 8% in January, 7% in December and 27% in November. At current prices, WTI is also trading at levels last seen in January 2020, before the onset of the coronavirus pandemic that decimated the market for months.

London-traded , the global benchmark for oil, settled at $64.42, down $2.46, or 3.7% on the day. For the week, it was up almost 2.5%. For the month, it was up 15%, extending gains of in January, 9% in December and 27% in November.  Brent also hit a 13-month high of $66.81 in February. 

A Reuters survey published on Friday forecast that Brent would likely average $59.07 per barrel in 2021. That was up from a Reuters forecast of $54.47 published last month, the biggest monthly revision in that poll going back to at least 2016.

The biggest short-term risk to that Reuters forecast, in the short-term, appears to be that major producers will use soaring prices to relax their pact on output restraint. OPEC+ is currently keeping some 7 million barrels a day of oil off world markets.

Aided by a tighter supply situation in the United States and globally, oil has rallied without a meaningful correction over the past four months. Most technical analysts say the market is overbought. But oil bulls have routinely ignored such warnings, especially after last week’s huge snowstorm in Texas that severely disrupted production in the heartland of U.S. energy.

Prior to the Texas storm, the oil rally was sparked and sustained by a combination of factors. 

It began with the November breakthrough in vaccines for the Covid-19. That was followed by OPEC leader Saudi Arabia’s announcement of deeper production cuts in January. 

From there on, commodity-index linked buying of oil, sizable weekly drops in U.S. crude stockpiles and hopes for economic stimulus from the Biden administration have spurred gains.

* With additional reporting by Geoffrey Smith

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