Oil Rises 2% on Speculative Halting of Supply Cut

By Adedapo Adesanya

Crude prices halted their recent bearish trend on Wednesday amid speculations that an alliance of oil producers could decide not to increase oil production from April as widely expected.

Yesterday, the Brent crude rose by 2.03 per cent or $1.27 to sell at $63.97 per barrel, while the West Texas Intermediate (WTI) crude gained  2.56 per cent or $1.53 to sell at $61.28 per barrel.

The major talking point in the oil market these days is if the Organization of Petroleum Exporting Countries and its allies (OPEC+) can absorb extra barrels despite opposition from members.

There are two parts to the production rise that OPEC+ will discuss. The first is whether the cartel will proceed with a 500,000 barrel per day collective rise in April. The second is the question of how Saudi Arabia could phase out its extra reduction of 1 million barrels a day.

Reuters reported that the OPEC+ alliance is considering keeping the oil production cuts from March in place in April as well, in view of the still-fragile global demand recovery.

Key members of OPEC have proposed keeping the current level of the OPEC+ cuts intact in April, while it is not immediately clear if Saudi Arabia would reverse its extra 1 million barrels a day cut from April, according to Reuters’ sources.

This report is in contrast with the expectations of many analysts and the market as a whole that the ministers of the OPEC+ group are set to decide on Thursday to increase production from April.

Saudi Arabia is also expected to reverse its additional 1 million barrels per day unilateral cut from April.

The premise won’t be known until the meeting ends on Thursday when the decision will be announced from OPEC+, but ahead of that, the market will continue to speculate and react to all kinds of reports.

Prices were not affected even as crude oil inventories in the United States increased by more than 20 million barrels per day last week, the US Energy Information Administration (EIA) said on Wednesday.

There was a build of 21.6 million barrels for the week to February 26 just as demand levelled off, production rose and Gulf Coast refinery utilization rates dropped.

This was different from the estimated 7.4 million barrels build reported by the American Petroleum Institute (API) and analyst expectations of an inventory draw of 1.85 million barrels.

For the previous week, the EIA had estimated a crude oil inventory build of 1.3 million barrels.