Markets.com Logo
euEnglish
LoginSign Up

OPEC+ meeting preview: tight supply likely to continue

Mar 1, 2021
4 min read
Table of Contents
  • 1. Backwardation
  • 2. US shale?
  • Backwardation points to supply deficit
  • Inventories falling globally
  • OPEC and allies likely to raise output

Crude oil futures rallied in the Asian session before paring gains as the European session progressed as traders look ahead to the OPEC+ meeting this week. OPEC and allies meet on March 4th with market participants looking at a likely lower of output constraints.

Going into the meeting, we note that global inventories are falling at their fastest rate in two decades, according to analysis by Morgan Stanley. Clearly with the ongoing demand uncertainty there is a risk that OPEC overtightens by maintaining output curbs for too long. The risk is now one of keeping too much oil on the side lines and not pumping enough, which will drive prices sharply higher. Goldman Sachs says Brent will hit $75 this year, whilst Trafigura is very bullish.

OPEC’s 13 members pumped 24.89m bpd in February, according to the latest survey, down 870,000 bpd from January in the first monthly decline since June 2020. In February the largest supply cut came from Saudi Arabia, which pledged an additional, voluntary 1 million bpd production cut for February and March. As a result, compliance with pledged cuts stood at 121% in February, up from 103% in January.

OPEC’s 13 members pumped 24.89m bpd in February, according to the latest survey

Current output constraints stand at a little over 7m barrels per day, with the 23-country OPEC+ grouping likely to agree to reduce this by another 500,000 bpd from April on Thursday. In addition, it’s likely Saudi Arabia will confirm the additional 1m it removed from the market will return in April. This would bring an additional 1.5m bpd on stream, but even this may not be enough to satisfy demand. 

 

OPEC will be mindful of the IEA report that suggested that inventories could start to climb again in the second quarter due to seasonal factors before drawing down again in the second half of the year. “The rebalancing of the oil market remains fragile in the early part of 2021 as measures to contain the spread of Covid-19, with its more contagious variants, weigh heavily on the near-term recovery in global oil demand,” the IEA’s latest Oil Market Report said. “But fresh support has been provided by a more positive economic outlook for the second half of the year, along with a pledge from OPEC+ to hasten the drawdown of surplus oil inventories.” 

Backwardation

The spread on Brent futures contracts points to significant short-term supply shortage. Six-month spreads are above $3, while the December contract trades about $4 below the May contract as the front months are commanding a significant premium over back months, a situation known as backwardation. This implies bullish positioning and tight supplies.

Brent futures contracts are showing backwardation.

And we are seeing similar levels of backwardation here on WTI futures, with the Apr contract trading about $4 above Dec.

We are seeing backwardation on WTI futures contracts.

 

US shale?

OPEC should be mindful of US shale producers, albeit the conditions for a sharp recovery in output are not what they once were. Nevertheless, OPEC+ could – by keeping output too tight – create conditions for a sharp acceleration in prices that see rivals deliver more. Baker Hughes said oil and gas producers added rigs for a 7th straight month for the first time since May 2018, although the rate of growth slowed as the Texas deep freeze hit. The less OPEC does to return the production cut last year the quicker these numbers should rise.

US rig counts

US oil & gas split

Chart: Pretty close to the top of the BB range and the upwards channel we’ve been in since Nov. MACD bearish crossover to be watched.

 

Pretty close to the top of the BB range and the upwards channel we’ve been in since Nov.


Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.

Written by
SHARE

Markets

  • Palladium - Cash

    chartpng

    --

    4.46%
  • EUR/USD

    chartpng

    --

    -0.12%
  • Cotton

    chartpng

    --

    -0.50%
  • AUD/USD

    chartpng

    --

    -0.25%
  • Santander

    chartpng

    --

    -1.87%
  • Apple.svg

    Apple

    chartpng

    --

    -0.52%
  • easyJet

    chartpng

    --

    -1.03%
  • VIXX

    chartpng

    --

    3.06%
  • Silver

    chartpng

    --

    3.53%
Table of Contents
  • 1. Backwardation
  • 2. US shale?

Related Articles

EU-US Trade Talks: Progress, Challenges, and Future Prospects

The EU and US are seeking a preliminary trade agreement to avoid rising tariffs. This analysis reviews the latest developments and potential challenges.

Ava Grace|about 13 hours ago

Elon Musk, Tesla Stock, and Political Ambitions: A Rocky Road Ahead?

Tesla's stock faltered following Musk's announcement of forming a new political party, raising investor concerns about his focus and intensifying competition.

Emma Rose|about 13 hours ago

Iranian President Claims Israel Attempted Assassination Amidst Nuclear Program Tensions

The Iranian President accuses Israel of attempting to assassinate him during the recent conflict and suggests a potential resumption of nuclear talks with the US while expressing doubts about trusting Washington.

Noah Lee|about 13 hours ago
Markets.com Logo
google playapp storeweb tradertradingView

Contact Us

support@markets.com+12845680155

Markets

  • Forex
  • Shares
  • Commodities
  • Indices
  • Crypto
  • ETFs
  • Bonds

Trading

  • Trading Tools
  • Platform
  • Web Platform
  • App
  • TradingView
  • MT4
  • MT5
  • CFD Trading
  • CFD Asset List
  • Trading Info
  • Trading Conditions
  • Trading Hours
  • Trading Calculators
  • Economic Calendar

Learn

  • News
  • Trading Basics
  • Glossary
  • Webinars
  • Traders' Clinic
  • Education Centre

About

  • Why markets.com
  • Global Offering
  • Our Group
  • Careers
  • FAQs
  • Legal Pack
  • Safety Online
  • Complaints
  • Contact Support
  • Help Centre
  • Sitemap
  • Cookie Disclosure
  • Regulation
  • Awards and Media

Promo

  • Gold Festival
  • Crypto Trading
  • marketsClub
  • Welcome Bonus
  • Loyal Bonus
  • Referral Bonus

Partnership

  • Affiliation
  • IB

Follow us on

  • Facebook
  • Instagram
  • Twitter
  • Youtube
  • Linkedin
  • Threads
  • Tiktok

Listed on

  • 2023 Best Trading Platform Middle East - International Business Magazine
  • 2023 Best Trading Conditions Broker - Forexing.com
  • 2023 Most Trusted Forex Broker - Forexing.com
  • 2023 Most Transparent Broker - AllForexBonus.com
  • 2024 Best Broker for Beginners, United Kingdom - Global Brands Magazine
  • 2024 Best MT4 & MT5 Trading Platform Europe - Brands Review Magazine
  • 2024 Top Research and Education Resources Asia - Global Business and Finance Magazine
  • 2024 Leading CFD Broker Africa - Brands Review Magazine
  • 2024 Best Broker For Beginners LATAM - Global Business and Finance Magazine
  • 2024 Best Mobile Trading App MENA - Brands Review Magazine
  • 2024 Best Outstanding Value Brokerage MENA - Global Business and Finance Magazine
  • 2024 Best Broker for Customer Service MENA - Global Business and Finance Magazine
LegalLegal PackCookie DisclosureSafety Online

Payment
Methods

mastercardvisanetellerskrillwire transferzotapay
The markets.com/za/ site is operated by Markets South Africa (Pty) Ltd which is a regulated by the FSCA under license no. 46860 and licensed to operate as an Over The Counter Derivatives Provider (ODP) in terms of the Financial Markets Act no.19 of 2012. Markets South Africa (Pty) Ltd is located at BOUNDARY PLACE 18 RIVONIA ROAD, ILLOVO SANDTON, JOHANNESBURG, GAUTENG, 2196, South Africa. 

High Risk Investment Warning: Trading Foreign Exchange (Forex) and Contracts For Difference (CFDs) is highly speculative, carries a high level of risk and is not appropriate for every investor. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Please read the full  Risk Disclosure Statement which gives you a more detailed explanation of the risks involved.

For privacy and data protection related complaints please contact us at privacy@markets.com. Please read our PRIVACY POLICY STATEMENT for more information on handling of personal data.

Markets.com operates through the following subsidiaries:

Safecap Investments Limited, which is regulated by the Cyprus Securities and Exchange Commission (“CySEC”) under license no. 092/08. Safecap is incorporated in the Republic of Cyprus under company number ΗΕ186196.

Finalto International Limited is registered  in the Saint Vincent and The Grenadines (“SVG”) under the revised Laws of Saint Vincent and The Grenadines 2009, with registration number  27030 BC 2023.

Close
Close

set cookie

set cookie

We use cookies to do things like offer live chat support and show you content we think you’ll be interested in. If you’re happy with the use of cookies by markets.com, click accept.