By Adedapo Adesanya
Crude oil moved closer to $70 per barrel on Friday, riding hard on the after-effect on the decision of the Organisation of the Production Exporting Countries and its allies (OPEC+) to hold off on easing production cuts for another month, surprising the oil market.
At the market yesterday, the price of the international benchmark crude, the Brent, jumped by $2.76 or 4.28 per cent to trade at $69.61 per barrel, while the value of the US benchmark crude, the West Texas Intermediate (WTI), appreciated by $2.45 or 3.78 per cent to sell at $66.24 per barrel.
On Thursday, OPEC+ surprisingly extended the cuts through April, aside from a slight increase allowed for Russia and Kazakhstan, due to seasonal consumption patterns.
Even Saudi Arabia decided to keep its one million barrels per day of voluntary cuts in place. The surprise news led to a price surge.
OPEC+ has helped drain a global glut that accumulated during the pandemic through its supply management, pushing crude futures up more than 30 per cent so far this year.
However, higher prices could spur additional drilling activity by US shale explorers, with domestic oil rigs already at the highest since May 2020. The oil rig count rose by one this week, according to energy services firm, Baker Hughes Co.
Market analysts noted that the longer prices stay up, the greater the likelihood the market will witness a supply response from the US, adding that it’s not going to be as immediate as it would have been in the past.
The rally in crude prices that helped send fuel prices to jump is being compounded by refined product supply declines in the US after a deep freeze paralysed much of the Gulf Coast refining sector late last month.
However, tensions are gathering in the Middle East after Yemen’s Houthi rebels claimed attacks on Saudi targets. The rebels, who are backed by Iran, said they bombed an airbase in Saudi Arabia’s southwest with a drone and hit a Saudi Aramco crude facility in Jeddah.
Meanwhile, some forecasters revised their price expectations upward following the OPEC+ decision.
Goldman Sachs raised its Brent crude price forecast by $5 to $75 a barrel in the second quarter and $80 a barrel in the third quarter of this year. UBS raised its Brent forecast to $75 a barrel and WTI to $72 in the second half of 2021.
In addition, the market got a boost after a report showed the US economy created more jobs than expected in February.
Gains were limited by the rising dollar, which hit its highest since November. A stronger dollar makes oil more expensive for holders of other currencies.
Dipo Olowookere