Oil prices slipped from 13-month highs on Thursday as worries that four months of rising futures will prompt U.S. producers to drill more and OPEC+ to remove some production cuts.
That small decline came despite an assurance that U.S. interest rates will stay low and a sharp drop in U.S. crude output last week due to the winter storm in Texas, both of which helped boost crude prices to their highest since January 2020 earlier in the day.
Brent futures for April delivery fell 49 cents, or 0.7 per cent, to $66.55 a barrel by 1:34 p.m. EST, while U.S. West Texas Intermediate (WTI) crude fell 23 cents, or 0.4 per cent, to $62.99. The April Brent contract expires on Friday.
“With momentum appearing to slow a week before the next OPEC+ meeting, crude may be positioning for a small correction,” said Craig Erlam, senior analyst at OANDA, noting “There’s still plenty of downside risks in the market and one of them is OPEC+ unity coming under strain in the coming months.”
Analysts noted higher oil prices in recent months - both Brent and WTI have gained more than 75 per cent over the past four months - could encourage U.S. producers to return to the wellpad and OPEC+ to loosen its production reductions.
The Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, are due to meet on March 4.
The group will discuss a modest easing of oil supply curbs from April given a recovery in prices, OPEC+ sources said, although some suggest holding steady for now given the risk of new setbacks in the battle against the pandemic.
Extra voluntary cuts by Saudi Arabia in February and March have tightened global supplies and supported prices.
Meanwhile, an assurance from the U.S. Federal Reserve that interest rates would stay low for a while helped support oil prices earlier in the day and should boost investors’ risk appetite and global equity markets.
The winter storm in Texas caused U.S. crude production to drop by more than 10 per cent or 1 million barrels per day (bpd) last week, the Energy Information Administration (EIA) said.
Fuel supplies in the world’s largest oil consumer also tightened as its refinery crude inputs dropped to the lowest since September 2008, EIA data showed.
Texas state legislators on Thursday started digging into the causes of deadly power blackouts that left millions shivering in the dark as frigid temperatures caught its grid operator and utilities ill-prepared for skyrocketing power demand.
ING analysts said U.S. crude stockpiles could rise in weeks ahead as production has recovered fairly quickly while refinery capacity is expected to take longer to return to normal.
Barclays, which raised its oil price forecasts on Thursday, said oil could rally again on the weaker-than-expected supply response by U.S. oil operators to higher prices.
“However, we remain cautious over the near term on easing OPEC+ support, risks from more transmissible COVID-19 variants and elevated positioning,” Barclays said.
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