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Oil up Over 2% as Market Buys Into OPEC Output Hike Plan 

CommoditiesApr 01, 2021 03:19PM ET
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© Reuters.

By Barani Krishnan

Investing.com — Crude prices swung from green to red and back on Thursday before settling up more than 2% as traders bought into OPEC+’s assurances that the global oil producing alliance could manage with higher output from May, despite questionable demand.

London-traded Brent, the global benchmark for crude, settled up $1.32, or 2.1%, at $64.86 per barrel. It reached as high as $64.95 earlier, from a session low of $62.45. 

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled up $2.29, or 3.9%, at $61.45. WTI’s intraday high was $61.58 versus a low of $58.88. 

Members of the 23-nation OPEC+, meeting via a two-day video hook-up, agreed to raise output by 350,000 barrels per day in May and June, and 400,000 bpd in July.

Saudi Arabia was initially reported to be considering another 250,000 barrels per day of cuts in May, and 250,000 bpd in June, to provide continued support to the market. It terminated that idea after reaching a consensus with the other producers that an output hike may not be a bad thing after all, especially if demand for crude spiked in the coming months, allowing the kingdom greater market share.

Since OPEC+ production cuts began a year ago, the Saudis have single-handedly led the reductions, conceivably allowing U.S. crude producers, who aren't a part of the alliance, to grow their oil exports at the expense of the kingdom.  

After weeks of remaining trapped at around 2.5 million bpd, U.S. crude exports jumped last week to 3.2 million bpd, data showed. 

U.S. oil production also rose last week to 11.1 million barrels daily, suggesting that American energy firms were responding positively to crude prices trading at $60 per barrel or more. A daily production of 11 million barrels or lower had been the norm for the United States over the past few months. 

The rise in U.S. crude production has been in tandem with the increase in the US oil rig count, as drillers put more rigs to work to extract additional supply. As of Friday, the rig count, which is a measure for future production, stood at 337. That was up 193, or 80%, from an August record low of 244.   

Iran, which officially remains under Trump-era sanctions banning exports of its oil, has also been shipping with immunity to China since President Joe Biden came into office in January, those with knowledge of the matter say.

While Iran is a founding member of the original OPEC cartel, it has never contributed a single barrel to the production cuts of the past year due to the Trump sanctions. Its stepped up exports to China could thus be depriving other producers trying to legitimately grow their oil sales.

"If anything, the Biden administration could move soon to do a deal with the Iranians that would officially remove the sanctions on them, and it might be prudent for the Saudis to try and increase their market share ahead of that," said Tariq Zahir, crude trader at New York macro fund Tyche Capital Advisors.  

Saudi Oil Minister Abdulaziz bin Salman seemed to acknowledge the weight of Iran’s role in the matter when he told reporters after the OPEC+ meeting that once Iran returns to pre-sanctions output, “we may remove the limit” on production.

Goldman Sachs (NYSE:GS) global head of commodities research Jeff Currie, meanwhile, predicted that Brent will hit $80 a barrel by the third quarter. Such lofty projections have often led to a crash instead.

Whatever the case, the diverse factors in play sent oil prices all over the place on Thursday, with the market rallying more than $2 a barrel, after dropping nearly $1 earlier.

Since April last year, OPEC+ — made up of the 13-member Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, and 10 non-OPEC nations steered by Russia — has withheld at least 7.0 million barrels per day of supply from the market. 

Those cuts helped WTI rise from a little under $36 per barrel on Oct. 30 to just below $68 by March 8. Brent went from beneath $38 to just above $71 in that same stretch. But over the past fortnight, the two benchmarks have lost about 10% from those highs.

Russian Deputy Prime Minister Alexander Novak told the OPEC+ meeting that global oil demand was anticipated around 5.0- 5.5 million bpd this year.

But while the alliance’s production cuts had slashed much of the Covid-19 related oil glut seen from March 2020, oil stocks remained above the 2015-2019 level, an OPEC+ document circulated at the meeting said.

The rollout of coronavirus vaccines and supply curbs had underpinned the oil rally of the past four months. But that’s fraying now on concerns that near-term consumption was at risk, particularly in Europe where France has announced a new month-long lockdown. 

Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, pointed this week to the market’s recent volatility as “a reminder of the fragility facing economies and oil demand.”

Oil up Over 2% as Market Buys Into OPEC Output Hike Plan 
 

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Comments (8)
Barani Krishnan
Barani Krishnan Apr 02, 2021 11:08AM ET
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Officials from Tehran and Washington will travel to Vienna next week as part of efforts to revive the 2015 nuclear deal between Iran and global powers, although they will not hold direct talks, diplomats said on Friday.  https://www.investing.com/news/world-news/iran-world-powers-to-hold-nuclear-talks-in-vienna-on-tuesday-2464639
Tre Hsi
Tre Hsi Apr 02, 2021 8:37AM ET
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once they allow the production increases, all the usual cheating from member states will begin again
Barani Krishnan
Barani Krishnan Apr 02, 2021 8:37AM ET
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OPEC being OPEC, my bet is that too. What's happening now is very uncharacteristic, as discipline is a strange word for this cartel, which has had its hands bound by the pandemic.
John Cerniuk
John Cerniuk Apr 01, 2021 10:32PM ET
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im gonna buy the dip when it comes i think we will see over $80 a barrel next summer
Easy and Quick Trans Accounting
Easy and Quick Trans Accounting Apr 01, 2021 4:23PM ET
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I like Opecs lets block the Shipping lanes to pump oil prices back up plan better.
Barani Krishnan
Barani Krishnan Apr 01, 2021 4:23PM ET
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Wishful thinking. They'd rather get the oil to the customer and sell more than artificially delay shipment. Probably an 1st April prank from Saudi Minister AbS, who watches too much Clint Eastwood to be believed :)
Ernest Wong CA
Ernest Wong CA Apr 01, 2021 4:04PM ET
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I guess it's very likely a range-bound trading month for Apr-21. Even $1 volatility per day could make me lots of money. :P
Barani Krishnan
Barani Krishnan Apr 01, 2021 4:04PM ET
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Sharp as always on the money, Ernest, my man! :)
Ernest Wong CA
Ernest Wong CA Apr 01, 2021 4:04PM ET
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Barani Krishnan  thanks man. Enjoy your Easter break :)
Leo Mu
Leo Mu Apr 01, 2021 2:27PM ET
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It's really a money issue. Aramco and global oil producers cut budgets for 2021, how can they increase outputs? They need capitals to make energy transitions.
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Ernest Wong CA
Ernest Wong CA Apr 01, 2021 2:27PM ET
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Barani Krishnan  very true. Iran shall be the next big factor to direct the way the oil price moves
Leo Mu
Leo Mu Apr 01, 2021 2:27PM ET
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Barani Krishnan   Iran needs much higher price to budget its spending. Some experts said Iran needs $395 oil for a better life.
Barani Krishnan
Barani Krishnan Apr 01, 2021 2:27PM ET
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Leo Mu  They probably have to wait for Ayatollah 12.0 then. You really think the Iranians believe in near $400 oil? Or do you? The highest crude ever got to was $147 pre-financial crisis. Even that the global economy couldn't sustain. Iran will take whatever price it gets now. Word is Tehran has enough crude suppressed by the Trump sanctions to put on the market in very short order. That's the Saudis will give up all their production controls to compete on the market the moment the Iran sanctions come off.
Leo Mu
Leo Mu Apr 01, 2021 2:27PM ET
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Barani Krishnan   $60 oil makes Iran poor. Iran counts on China to develop its oil.
Barani Krishnan
Barani Krishnan Apr 01, 2021 2:27PM ET
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Leo Mu  You don't seem to understand that Iran doesn't have the power to make oil prices go higher now. On the contrary, every barrel they put on the market tends to devalue oil, because their trades are off OPEC+ books. And it doesn't help that in order to win customers, the Iranians are reportedly offering barrels in the cash market at $3 or $5 discount to Brent. That is directly undercutting the Saudis and rest of OPEC+. How will that send oil prices higher, you tell me? Iran can make the market when world supply becomes super tight and they have the luxury to "play" with sentiment. At the moment, they are barely surviving.
Vlad Lozovskiy
Vlad Lozovskiy Apr 01, 2021 1:25PM ET
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Oil swings.... means go higher.
Barani Krishnan
Barani Krishnan Apr 01, 2021 1:25PM ET
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Swings mean "both" ways. One-way trade -- up -- is over for now.
Barani Krishnan
Barani Krishnan Apr 01, 2021 12:22PM ET
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A hedge fund manager I just got off the phone with, after discussing this story, told me: "Usually the higher it goes, the harder it falls."
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Golden Berg
goldenberg Apr 01, 2021 12:22PM ET
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100%. You can't argue with supply-demand.
Barani Krishnan
Barani Krishnan Apr 01, 2021 12:22PM ET
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Golden Berg  Totally, my friend.
Afeez waheed
Afeez waheed Apr 01, 2021 12:22PM ET
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A hedge fund manager I just got off the phone with, after discussing this story, told me: "Usually the higher it goes, the harder it falls."
Ernest Wong CA
Ernest Wong CA Apr 01, 2021 12:22PM ET
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""Goldman Sachs (NYSE:GS) global head of commodities research Jeff Currie, meanwhile, predicted that Brent will hit $80 a barrel by the third quarter."" yeah yeah yeah what's the cost to "predict"??? LMAO!
Barani Krishnan
Barani Krishnan Apr 01, 2021 12:22PM ET
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Ernest Wong CA   Ha ha .. that's why I couldn't resist adding the bit after that such "lofty predictions" have often resulted in a crash
 
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