Oil prices eased from a seven-year high as traders waited to see whether OPEC+ can deliver on its latest promised increase in supply.
On Wednesday, the 23-nation coalition led by Saudi Arabia rubber-stamped a nominal increase of 400,000 barrels a day for next month at a short online meeting. West Texas Intermediate edged lower after almost striking US$90 a barrel, while traders are increasingly doubtful that all its members will be able to meet their quotas in full.
Crude has made a powerful start to this year and banks including Goldman Sachs Group Inc say that the world’s most important commodity is on track to hit US$100 a barrel. The rally has been underpinned by a revival in demand from the depths of the pandemic, lower stockpiles, and interruptions to supply.
“The 400,000-barrel-a-day output hike was largely expected, but market attention is increasingly on OPEC+’s spare capacity,” said Howie Lee (李浩), an economist at Oversea-Chinese Banking Corp (華僑銀行). “Brent still trades a shade below US$90 at present, but we maintain our bullish call.”
As doubts grow about whether the anticipated expansion in global inventories will actually happen this quarter, forecasts are piling up for a return to prices of US$100 a barrel or more. Such a rally could ultimately provoke enough pressure from Saudi Arabia’s allies in Washington for a change of stance.
“If prices continue their precipitous rise, we see a path to Saudi Arabia reprising the regulator role and ramping up output,” said Helima Croft, chief commodities strategist at RBC Capital Markets. “Of course, the question is whether this would require a White House call.”
Investors also continue to track developments over Ukraine amid concerns that Russia may invade, even though Moscow has said it has no such plan. An attack carries the potential to upend energy flows, stoking prices.
Oil historian Daniel Yergin said further escalation over Ukraine could send prices to US$100 a barrel.
There are tensions in the Middle East, too. The United Arab Emirates said three hostile drones that entered its airspace on Wednesday had been intercepted, days after it fended off a missile attack by fighters based in Yemen.
Oil markets remain in backwardation, a bullish pattern marked by near-term prices trading above longer-dated ones. Brent’s prompt spread — the difference between its nearest two contracts — was US$1.35 a barrel. That is up from US$0.41 a barrel on the first trading day of this year.
In the US, declining crude oil stockpiles highlight the market’s steady tightening. Nationwide inventories contracted again last week, according to official figures. And oil’s surge over recent quarters will fan inflationary pressures, complicating the task for central banks including the US Federal Reserve as they seek to tighten monetary policy without choking off growth.
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