Oil prices high ahead of OPEC-JMMC meetings

OPEC-JMMC meeting comes this week with oil prices starting on the front foot. Will we see any drastic policy changes from the cartel? Meanwhile, the transition from heating to cooling system continues in natural gas markets.

Oil trading

WTI and Brent contracts start the week strongly, reaching over $67 and $70 respectively.

Robust demand growth is powering oil prices. OPEC and allies’ optimistic outlook regarding global oil demand is ringing true, particularly in importers with strong vaccination programmes.

Even the potential addition of fresh Iranian crude onto markets should not be enough to destabilise worldwide supply/demand across the rest of 2021.

OPEC+ has put demand recovery at around 6m bpd, fuelled by increasing levels of domestic and international travel as global economies open post-lockdown.

OPEC & Allies kick off meetings on Wednesday, 2nd June. Markets anticipated no major changes to its production cuts policy. The cartel and allies have been gradually tapering up output levels for the past couple of months.

Wednesday’s meeting is all about cementing plans for July and August, i.e. whether to ramp up the taper or keep it in line with the cartel’s original direction.

The OPEC+ group is expected to confirm its May-July plan to ease the oil production cuts by the planned 840,000 bpd in July, OPEC+ delegates and two dozen analysts told Bloomberg News last week.

At this year’s April meeting, OPEC-JMMC agreed to bring 2.1m bpd, back to markets between May-July.

Turning to US crude oil inventories, the EIA reports a drawdown for the week ending May 21st.  Commercial crude oil inventories decreased by 1.7 million barrels from the previous week, reaching 484.3 million barrels. US crude inventories are roughly 2% lower than the five-year average.

Natural gas trading

Last week’s natural gas price plunge is being offset by perfect cooling gas demand temperatures and high LNG feed gas volumes in the US.

The EIA natural gas storage report for week ending May 21st showed an 115 Bcf injection that exceeded analysts’ high-end estimates and signaled weaker demand. Natural gas inventories totaled 2,215 Bcf.

Late season coolness including thunderstorms and rain will be hitting key demand areas of the US, Natural Gas Weather reports, which may lightly increase heating demand in the short term. This will be offset by warmer temps later this week, speeding along the transition to cooling season.

LNG feed gas volumes at Texan infrastructure is forecast to reach near-record levels again soon. Intense LNG demand from Asia could help drive liquid natural feed gas levels back towards the 11 Bcf level seen earlier in the year.