Oil prices started the week positively on expectations that OPEC+ will keep output levels unchanged in February and as Chinese oil demand is recording a weather-related uptick.
When OPEC+ decided last month to step in and help the oil market again, limiting its planned output boost to just 500,000 barrels for January, prices grew on the bullish news as the group addressed demand concerns.
OPEC’s decision had left room for uncertainty though, as it left the output of following months open to discussion.
Russia has reasons to support a 500,000 bpd maximum increase and so likely do some others including the UAE, while Saudi Arabia seems less eager to taper given the risk to from spiraling Covid-19 cases to demand.
Oil prices are rising today as most participants in yesterday’s OPEC+ JTC meeting seemed to be against an output increase from February, creating expectations among traders that no more additional oil will flood the market amid the current weak demand.
Under the current output terms, surpluses are expected from February till April, before demand recovers from May onwards, so a possible OPEC+ decision to not increase production will keep balances at a manageable level.
Crude is also currently receiving support from a weaker US dollar and a positive sentiment over risk assets.
A cold-snap in China is increasing diesel demand as a back-up source for power generation, which is also supporting overall oil demand.
On the downside, traders make sure the price gains do not go over the edge, as Covid-19 cases are continuing to escalate in parts of the world, even in Asia, at the heart of the demand recovery.
Thailand and Japan, where a state of emergency is being mulled, will be on traders concern radars.
Vaccine rollouts are ongoing across the globe, but traders know it will take time before anything close to herd immunity is reached, hence the bears look set to come back and haunt the bulls before long.
Overall, a lot will depend on the OPEC+ meeting today. If the decision is to rise output from February, prices are bound to take a hit.
At the moment though, expectations are for the opposite, with stable output lightly priced in. A confirmation that the group’s production will not rise will definitely strengthen the market sentiment and assist prices on their ascent.
As usual, the group’s members may come up with reservations and concerns on either option, so price swings could happen during the day as leaks from the discussions start to emerge.
A long-lasting meeting is always a sign that a unanimous decision is not very easy to reach, so traders will also keep an eye on their clocks today for a hint of what’s coming.
