Opec+ sticks with oil policy as prices rise towards one-year high

London - A Joint Ministerial Monitoring Committee of Opec+ met virtually on Wednesday, pronouncing itself “optimistic for (a) year of recovery in 2021,” a statement issued after the meeting said

By Reuters

Published: Wed 3 Feb 2021, 9:23 PM

Opec+ maintained its oil output policy at a meeting on Wednesday, a sign producers are happy that their deep supply cuts are draining inventories despite an uncertain outlook for a recovery in demand as the pandemic lingers.

A Joint Ministerial Monitoring Committee of Opec+ met virtually on Wednesday, pronouncing itself “optimistic for (a) year of recovery in 2021,” a statement issued after the meeting said.

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Oil has rallied from historic lows hit last year as the pandemic hit demand, thanks to record output cuts by the Organisation of the Petroleum Exporting Countries (Opec) and allies, known as Opec+ that the group is beginning to unwind.

“While inventories are drawing fast, the market is pricing in a smooth rollout of vaccines and that may be premature,” said Amrita Sen, co-founder of Energy Aspects.

The Opec+ panel made no mention of changing policy, which calls for most members to hold supply steady in February and top exporter Saudi Arabia to cut output voluntarily by 1 million barrels per day this month and next.

“While economic prospects and oil demand would remain uncertain in the coming months, the gradual rollout of vaccines around the world is a positive factor for the rest of the year, boosting the global economy and oil demand,” the statement issued after the meeting said.

A document seen by Reuters on Tuesday showed Opec expects the output cuts will keep the market in deficit throughout 2021, even though the group has revised down its forecast of the pace of this year’s oil demand recovery.

Oil prices extended gains on Wednesday after the meeting ended and benchmark Brent crude traded as high as $58.74 a barrel, the highest since late February 2020.

The Opec+ panel meets next on March 3 and this is expected to be followed by a full Opec+ gathering to decide policy.

Both benchmark oil contracts were close to their highest in about a year on Wednesday, boosted by a draw in US crude and gasoline stocks, which fuelled demand recovery hopes as Opec+ has forecast that the market will be in deficit in 2021.

Brent crude futures were up 55 cents, or one per cent, at $58.01 a barrel at 1245GMT, their highest in about 11 months.

The contract’s “backwardation” structure, where oil for nearby delivery is more expensive than further forward, was near a one-year high at more than $2, indicating expectations of tighter supply.

US West Texas Intermediate (WTI) crude futures climbed 40 cents, or 0.7 per cent, to $55.16 a barrel, having hit a one-year high at $55.28 a barrel earlier on Wednesday.

The market was also bolstered by news that Democrats in the US Congress took the first steps toward advancing President Joe Biden’s proposed $1.9 trillion coronavirus aid plan without Republican support.

The API oil industry association reported US crude oil inventories fell by 4.3 million barrels in the week to January 29.

Gasoline stocks fell by 240,000 barrels, defying analysts’ expectations for a build of 1.1 million barrels. Distillate inventories also fell.

“Underpinning the bullish sentiment are tightening fundamentals. Ahead of today’s ministerial meeting, Opec+ hinted that global oil stockpiles will decline below the five-year average by June,” PVM analysts said. — Reuters