It’s crunch time for oil prices ahead of OPEC+ April meeting
The focus turns once more to OPEC and allies this week as the oil industry waits for the Cartel’s next move. In natural gas, higher LNG feed gas volumes continue to support prices.
OPEC+’s April meeting takes on extra importance this Thursday following the recent drop in oil prices.
Prices got supported by the Ever Given Suez fiasco. The mega container ship blocking the Suez Canal put a squeeze on oil supplies as the key transport route was blocked.
Ever Given is sailing free and the canal is open to tankers once more, but congestion caused by the vessel’s predicament could have a knock-on effect in getting oil to terminals around the world. Thus, prices could be supported going forward.
Crucially, though, prices have increased heading into Thursday’s OPEC+ summit.
Prices rose 1% on Monday 29th March when Reuters reported Russia, one of the most vocal proponents of tapering cuts back toward pre-pandemic volumes, is willing to support stable oil output in line with existing cuts.
At the time of writing, WTI futures are trading at around the $61 mark with Brent at $64.
At March’s meeting, Russia and Kazakhstan were both given the go ahead to raise their output slightly in line with seasonal demand.
Saudi Arabia’s self-imposed 1m bpd cut is due to come to an end in April, but the Saudis have generally been the most cautious of the big OPEC hitters when it comes to increasing production. Reuters reports that it’s expected that Saudi Arabia will want to maintain the current production cut level into May and June.
Demand recovery looks like it’s still shaky. The EU’s vaccine programme is still causing consternation for oil producers. If it can’t sort out its vaccine regime, we’ll see further lockdowns. France and Poland have already implemented stricter measures. Demand, therefore, may remain below pre-pandemic levels in the short term.
U.S. commercial crude oil inventories increased by 1.9 million barrels from the previous week. At 502.7 million barrels, U.S. crude oil inventories are about 6% above the five-year average for this time of year.
However, there was an uptick in gasoline use, according to EIA data. Total motor gasoline inventories increased by 0.2 million barrels last week and are about 3% below the five-year average for this time of year.
LNG continues to be the big support for natural gas prices. Feed gas volumes at US terminals are higher than yearly averages, at 11.6 Bcf. Liquid gas exports are helping offset lower heating demand as warmer temperatures hit most of the US.
It wasn’t just oil that benefitted from the Suez situation. LNG ships were also part of the traffic jam. Supply squeeze, coupled with the higher feed gas volumes being pumped into US terminals, has supported prices so far this week. And, as we mentioned earlier, congestion is likely to remain for a while, so it’s possible Suez will still influence short term price movements.
Even so, the EIA reported a withdrawal of 36 Bcf from natural gas storage for the week ended March 19, a pull that was steeper than market expectations and the year earlier draw of 26 Bcf.