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Oil Ends Down Almost 5%, Reversing OPEC Output Cheer

CommoditiesApr 05, 2021 03:44PM ET
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By Barani Krishnan

Investing.com - For better or worse, the world’s oil producers decided last week to defy Saudi Arabia and push for higher output over the next three months. After patting them on the back — even rewarding them — the market is now saying it was definitely for the worse.

Crude prices fell more than 4% on Monday, reversing the pre-Good Friday rally, as traders frowned upon the decision by OPEC+ to put to rest its year-long production cuts on the assumption of increasing summer demand for oil.

The 23-member OPEC+ —comprising the original 13 members of the Saudi-led Organization of the Petroleum Exporting Countries and 10 other oil producing nations steered by Russia — said on Thursday it will pump an additional 350,000 barrels per day in May and June, and a further 400,000 daily in July. Saudi Arabia initially did not want an output hike, but gave in to pressure from the rest in the cartel.

While the announcement was greeted by a friendly market at that time, it was viewed with a different lens on Monday due to stubborn coronavirus situations outside the United States.

Latest reporting on the Covid-19 pandemic showed the U.K. variant of the virus continuing to scorch parts of Europe — with Poland experiencing 60 times more cases than a year ago. India, meanwhile, saw a record of more than 100,000 infections daily over the weekend. Europe, as a region, is one of the single largest consumers of oil while India itself is the third largest crude buyer. 

London-traded Brent, the global benchmark for crude, settled down $2.71, or 4.2%, at $62.15 per barrel. Brent’s session low was $61.25, a bottom not hit March 25.

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down $2.80, or 4.6%, at $58.65. WTI earlier hit a two-week low of $57.63.

Crude prices also came under pressure as Iran opened talks with global powers in Vienna to find a way to end the two-year-old U.S. sanctions on its oil imposed by the former Trump administration. The White House, now under President Joseph Biden, is agreeable to ending the sanctions, provided Tehran shows proof that its nuclear program isn’t capable of producing an atomic bomb. Iran is, however, demanding the sanctions be removed first before it makes such concessions. 

The standoff between the two sides — with U.S. officials not even attending the talks in person at Iran’s insistence and using intermediaries from other world powers to press Tehran — indicates that an agreement won’t be done too soon. 

While that should be positive for oil prices, the problem for the market is Iran has been violating the sanctions for some time, selling oil secretly to China, even when Trump was in office. Since the current administration took office in January, Iran has become much bolder with the violations, as Biden has been paying lip service more than anything to Trump's sanctions.

Even if Iran doesn’t get a deal to drop the sanctions right away, it will continue adding oil to the market — on top of the OPEC+ supply hike that will come on from May. That’s what's really worrying the market now.

 

Oil Ends Down Almost 5%, Reversing OPEC Output Cheer
 

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Comments (6)
Tre Hsi
Tre Hsi Apr 06, 2021 4:55AM ET
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once OPEC allows its member to increase production, they will all start pumping more than the allowed quota, as they have been doing for years prior
Barani Krishnan
Barani Krishnan Apr 06, 2021 4:55AM ET
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Tre Hsi, yes, history suggests so.
Stephen Corsaro
Stephen Corsaro Apr 05, 2021 5:12PM ET
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intensional ignorance. oil isn't going away anytime soon. plastics,synthetic fibers, medicines, utility, transportation depend on it. Green alternatives are non existent for some replacements at the moment and too slow and capital intensive in other cases. The process will take at least 50 years to have any real changes.
Joel Schwartz
Joel Schwartz Apr 05, 2021 4:54PM ET
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Pretty odd seeing SPY up 1.5% when oil falls 5%. Is this peak FOMO?
CHAD TENDIES
CHAD TENDIES Apr 05, 2021 2:11PM ET
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We dont need oil anymore. We have electric cars and can work from home
Dusty Owen
Dusty Owen Apr 05, 2021 2:11PM ET
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Lmao...you know where the plastics on the EVs come from? How the EVs are transported? Where the electricity from the magic box in the wall you plug your EV in comes from? Electric barely puts a dent in oil demand. Only nuclear can currently do that.
Al Smith
Al Smith Apr 05, 2021 1:18PM ET
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Its just so taboo....  that thing that everyone is connected to every day but doesn't want to admit it.
Alan Rice
Alan Rice Apr 05, 2021 12:19PM ET
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Trash Earth !! Get Your cheep oil (everywhere !!).
Barani Krishnan
Barani Krishnan Apr 05, 2021 12:19PM ET
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Be calm. I've told you before, Alan: Do not use cheap oil unless it's under $40 a barrel.
 
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