Oil headed toward US$65 a barrel after OPEC+ chose not to relax supply curbs even as the global economy pulls out of a slump driven by the COVID-19 pandemic, confounding widespread expectations that the group would loosen the taps.
The surprise decision spurred a wave of crude price forecast upgrades by major banks.
The producer alliance agreed to hold output steady in April, while Saudi Arabia said that it would maintain its 1 million barrel-per-day voluntary production cut.
Photo: Bloomberg
West Texas Intermediate yesterday rose a further 1.5 percent in Asian trading, after surging by more than 4 percent to the highest close since April 2019 on Thursday.
Brent climbed to as much as US$68 per barrel.
Crude has soared this year, shepherded higher by OPEC+ restraining supplies and the vaccine-aided recovery in consumption that has drained inventories. The group’s decision represents a victory for Riyadh, which has advocated for tight curbs to keep prices supported.
OPEC and its allies, including Russia, had been debating whether to restore as much as 1.5 million barrels per day of output. As part of the agreement, which was struck at a virtual meeting on Thursday, Russia and Kazakhstan were granted exemptions.
The group’s next meeting is set for April 1 to discuss production levels for May.
Saudi Arabia’s bold and unexpected gamble to restrain production is founded upon its view that, this time around, higher prices would not lead to a big increase in output by US shale drillers.
Shale companies are more focused on dividends, Saudi Arabian Minister of Energy Prince Abdulaziz bin Salman said in an interview after the OPEC+ meeting.
Oil’s rapid gains this year stand to intensify the debate about the potential resurgence in inflation, and complicate the task facing the US Federal Reserve as it supports the US recovery. The US Treasury market is on edge for signs of faster price gains, with yields rising rapidly.
Crude is up more than 8 percent since Tuesday’s close, despite a strengthening of the dollar and a steep sell-off in other major commodities, especially economic bellwether copper.
Saudi Arabia’s optimism over US shale remaining subdued appears plausible for now, said Vandana Hari, founder of Vanda Insights in Singapore.
However, “the kingdom might be pushing its luck if it pursues the hawkish path for too long” and oil cannot remain fully immune to broader risk-aversion, she said.
Goldman Sachs Group Inc raised its Brent forecasts by US$5 per barrel and sees the global crude benchmark at US$80 in the third quarter.
JPMorgan Chase & Co increased its Brent projection by US$2 to US$3 per barrel, while Australia & New Zealand Banking Group Ltd boosted its three-month target to US$70.
Citigroup Inc said that crude prices could top US$70 before the end of this month.
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