OIL VIEWSLETTER

Saudi masterstroke puts OPEC+ on a more hawkish path - March 5, 2021

Crude bulls don’t need to wait for Covid vaccines. They got their second shot in the arm this week – two months after the first one – from OPEC kingpin Saudi Arabia.

The Kingdom neatly sidelined its dovish non-OPEC heavyweight partner Russia and once again wrong-footed the wider market by pushing through a rollover of OPEC+ cuts as well as its extra voluntary curbs into April, in contrast to expectations for a supply boost.

Perhaps more importantly, Saudi Arabia appears to be leveraging its 1 million b/d unilateral output cut to steer its OPEC+ peers on to a more hawkish path, one that may continue pushing crude prices up far ahead of global oil demand recovery.

Brent, which spiked by 4% to settle close to 13-month highs on Thursday, had surged another 2% through Friday and vaulted above the $68/barrel mark as we closed this report – clearly overbought and ripe for a pullback.

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BULLS & BEARS

Feb 2021: Mildly bullish near-term, moderately bullish over next 3 months - Feb. 12, 2021

After weighing the key price-influencing factors in the global oil markets, our Feb 2021 issue of Bulls & Bears concludes a Mildly Bullish view in the near term and a Moderately Bullish view for the next three months.

This marks a major shift from our January B&B report, when the oil demand recovery was looking stalled to softer through Q1 and perhaps on a slow upward path through Q2. 

While the Q1 dent in demand from the second and third waves of Covid across Europe and the US is not in doubt, a consistent and considerable decline in daily reported global cases of Covid since January 12 has prompted a sharp turnaround in sentiment and pushed crude to one-year highs. 

The beginning of the pandemic’s surprising retreat, which came to the attention of the markets around February 1, amplified the impact of the additional 1 million b/d of Saudi output cuts that took effect the same day.

 

ENERGY RADAR

energy radar first report - Jan. 13, 2020

Shortly before the markets opened, US President Donald Trump tweeted that he had authorised the release of stocks from the country’s Strategic Petroleum Reserve if necessary, to keep the y 9.30 am Singapore time (0130 GMT), three and a half hours after trade opened for the week on the CME and ICE futures exchanges, crude had calmed down somewhat, to gains of 10-12% versus Friday’s clsoe. markets

BRIEFING NOTES

OPEC+ deal sets stage for a tumultuous start to 2021 - Dec. 4, 2020

After a week of fractious negotiations, the OPEC/non-OPEC alliance decided on Thursday to add a modest 500,000 b/d of supply to the market from January. The market had been expecting a three-month rollover and as the talks dragged on, had started to factor the far more bearish possibilities of a 1.9 million b/d boost, or worse, a second collapse of the alliance and its deal.

 The final outcome did not appear too catastrophic and crude staged a relief rally, slightly surpassing the nine-month highs hit a week ago at Thursday’s settle. Prices spiked at market open in Asia on Friday, but had begun to lose momentum as the day wore on.

As the dust settles on this week’s OPEC+ drama and decision, we expect crude to principally revert to tracking the virus-versus-vaccine duel, alternating between bouts of optimism and pessimism. There will be other characters on the stage of course – a steadily weakening US dollar and signs of the US Republicans and Democrats once again attempting to get behind a second coronavirus relief package. We’ll have more on that in the coming weeks.

In this Executive Briefing Note, we focus on all the dimensions and implications of the OPEC+ deal. Importantly, we would say that while the producers’ alliance is to be lauded for becoming ultra-flexible and fleet-footed to try and keep up with the uncertainties of the pandemic, the decision to review and adjust the production ceiling on a monthly basis – an unprecedented policy shift – could have grave consequences for the market.

 

 

CRUDE IN SIGHT

Crude pauses early Fri after 4% spike on OPEC+ rollover of cuts to April - March 5, 2021

Crude futures were flitting in a narrow range either side of Thursday’s settle early Friday in Asia, as traders in the region digested the OPEC/non-OPEC alliance’s highly unexpected agreement late the previous day to largely roll over its current production cuts to April.

In addition, Saudi Arabia decided to continue with its 1 million b/d unilateral output cut through April, saying it would decide on a gradual phase-out at a later date. The oil market had been widely expecting OPEC+ to agree a 1.0-1.5 million b/d increase in production next month, including a gradual or complete end to the Saudi cut.

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