How will oil react to OPEC+’s March meeting?

OPEC and its allies meet later this week with the eyes of the oil market upon them. How will markets react? Will we see production cuts lifted or will they remain in place? Meanwhile, as the big thaw spreads through the US, natural gas prices may fall. 

Oil trading 

OPEC+’s March meeting dominates the oil headlines this week. The cartel and its allies meet on Thursday to plot the next plan of action, or inaction, going forward as cracks of light appear through the Covid fog. 

The big question is: will production cuts be eased? There are mixed outlooks here. Russia is pushing for an easing of cuts and wants to start pumping more again. Saudi Arabia, the de facto OPEC leader, does not want to move quite so quickly. 

Compliance with cuts has been solid across 2021 so far, with compliance standing at 103% in January and 121% in February. The latest production survey shows the cartel’s 13 members produced 24.89m bpd in February. This was a decrease of 870,000 bpd from January’s levels, and the first monthly decline since June 2020.   

Saudi Arabia’s voluntary 1 million bpd production cut has certainly helped with compliance, but it’s probably going to reduce or remove this entirely in the next meeting, according to some forecasts. 

But what about prices? The protectionist cuts have helped strengthen them across February, but at the time of writing WTI had retreated to $60 while Brent was hovering just underneath the $63 mark. 

Still, the longer-term outlook across the year has some observers feeling bullish. Goldman Sachs, for instance, has said Brent will hit $75 this year. Lockdowns are starting to loosen, and vaccines are reducing cases and hospitalisations the world over – good news for oil producers. 

For a more detailed look at oil ahead of the OPEC meeting, please see Chief Markets Analyst Neil Wilson’s OPEC preview. 

Prices may have strengthened thanks to the Texas freeze. For much of the previous two weeks, the heart of the US oil & gas industry has been blanketed by heavy snowfall and ice, shutting down production and refinery operations. Resulting tighter supplies could have added support to oil prices in the short term. 

In terms of inventories, US stockpiles appear to be realigning with pre-pandemic norms. They currently sit at the five-year average for this time of year, with last EIA report showing 463m barrels in storage. 

Natural gas 

US natural gas inventories dropped 338 Bcf, to 1,943 Bcf for the week-ended February 19, according to EIA’s latest report. That’s only the second time inventories have experienced a drawdown over 300 Bcf.  

However, a thawing in the Texas Arctic freeze, and warming temperatures across the rest of the US, will likely result in less gas demand, thus lower prices in the coming weeks. March will likely need to give a helping hand, weather-wise, to markets if they wish to sustain the price levels seen at the tail end of February. 

Looking to the short-term, though, NatGasWeather said a bump in US national demand was expected to continue through Tuesday, “As a weather system impacts Texas and the southern Plains with showers, while a colder system sweeps across the Great Lakes, Ohio Valley and Northeast with lows of 0s to 30s.” Reasons to be cheerful?