Ahead of a meeting of Organization of the Petroleum Exporting Countries (OPEC), and allied producers to discuss output levels for February with fears as oil prices edged lower on Monday, the first day of 2021 trading, for first-half demand seeping into the market as the Covid-19 pandemic lingers.
The prices are up about half a percent but off multi-month highs, supported by gains in the broader equity markets, expectations of OPEC+ capping output at current levels at its policy meeting today, and a weaker US dollar.“With WTI not able to reach the level of $50 per barrel, some profit taking might have set in,” UBS analyst Giovanni Staunovo said.
Natural gas futures are up 4% on forecasts for a colder start to January which should boost heating demand.
OPEC decided to add back a modest 500,000 barrels per day to the oil market, and to review production monthly with a goal of restoring 2 million barrels a day in December.
However, the combined shipments of crude and condensate a light form of oil extracted from gas fields from Saudi Arabia, Iraq, the United Arab Emirates and Kuwait were more than 700,000 barrels a day higher in December than in November. Increased shipments from Saudi Arabia, Kuwait and Iraq more than offset a drop in flows from the UAE, according to Bloomberg .
The group and non-member countries that have agreed to cooperate with it last year imposed a production cut of 7.7 million barrels a day to prevent prices from collapsing during the economic slump caused by the pandemic.
Analyst says, OPEC members certainly want to take advantage of this spike in prices, but the reality is that oil demand is probably still a few months away from bouncing back substantially. In fact, given the precarious state of the U.S. economy and the fact that it will be late winter at the earliest before a substantial portion of the population is vaccinated U.S. oil demand may not return to normal until the second half of 2021.
That poses a risk that OPEC is putting more oil into an already oversupplied market, with the risk that this will send oil prices down yet again. So what is OPEC thinking?
Meanwhile, brent crude for March was at $51.76 a barrel, down 4 cents or 0.08%, by 0038 GMT while U.S. West Texas Intermediate crude for February fell 9 cents, or 0.2%, to $48.43 a barrel.
Mohammad Barkindo, Secretary General of the Vienna-based, said on Sunday that while crude demand is expected to rise by 5.9 million barrels per day (bpd) to 95.9 million bpd this year, the group sees plenty of downside demand risks in the first half of 2021.“We are only beginning to emerge from a year of deep investment cuts, huge job losses and the worst crude oil demand destruction on record,” he said.
Saudi Arabian Energy Minister Abdulaziz bin Salman opened the online meeting Monday by saying that demand remained “fragile” for transport fuels including for aircraft, and that the cartel needed to move carefully even as the rollout of vaccination programs raises hopes for a return to more normal travel habits. “I want to urge caution even in this generally optimistic environment” he noted.
For OPEC, raising production would increase revenues for producing countries that have seen their budgets hard hit by lower prices, but pumping too much too soon could undermine the modest price rebound.