Oil rallies after Opec+ maintains curbs on improving global economic recovery
Oil prices rose in trading yesterday after Opec+ left plans to increase output unchanged.
Brent and West Texas Intermediate futures both made gains after Tuesday’s decision, with the latter hitting its highest level in two weeks.
International benchmark Brent rose by 1.55 per cent to $67.45 at 8.36pm UAE time. US marker WTI gained 1.75 per cent to $64.04.
Opec+, led by Saudi Arabia and Russia, maintained its current level of curbs on the back of the continued recovery of the global economy.
The group plans to increase output by 350,000 bpd in May and June and will add 450,000 bpd in July. Saudi Arabia, which had supported the group’s restrictions by volunteering to cut 1 million bpd until April, will phase out the curbs from May. Riyadh will ease curbs by 250,000 bpd in May, 350,000 bpd in June and 400,000 bpd in July.
Opec+ postponed a ministerial meeting of producers scheduled for yesterday to June 1 and urged producers to remain “vigilant and flexible” amid uncertain market conditions.
“The decision to hold will provide some relief to markets in the form of stable volumes rather than the surprise production decisions that Opec+ has endorsed several times this year,” said Edward Bell, senior director of market economics at Emirates NBD.
However, the evolving situation with respect to demand may complicate the group’s strategy to raise output. India, the world’s third-largest consumer of oil, is in the throes of a devastating second wave of the pandemic, which has left its already fragile health infrastructure hamstrung.
Refiners are cutting back on processing rates as workers from large plants flee to their hometowns across the country to escape the spread of the pandemic.
With various state governments introducing curfews and containment strategies, India’s oil demand is expected to take a hit. The country imposed one of the strictest lockdowns in the world last year, which led a severe curtailment of crude demand.
“The barrels will be coming on to a market that is beset by substantial demand risks, not least of which are centred on India where expanding lockdowns risk crashing oil demand,” said Mr Bell.
For now, oil prices are steady despite a stronger dollar and higher crude stocks in the US.
“A benign Federal Open Market Committee and the expectations of impressive US data to come this week and its flow-on impact of US consumption appear to be trumping concerns over Covid-19 in India”, said Jeffrey Halley, senior market analyst for the Asia-Pacific region at Oanda.
The FOMC is a body within the US Federal Reserve.
With various states introducing curfews and containment strategies, India’s demand is set to take a hit