Thursday, March 30, 2023

Oil Prices Off Highs on Fears for OPEC+ Unity By


© Reuters.

By Geoffrey Smith — Crude oil prices came off their highs in early trade on Tuesday amid fears that the collective discipline of major oil producers is fraying, and that they after all proceed with at least a small increase in output at the start of next year. 

A major factor in the 33% rally of the last month has been the growing belief that the economic slowdown in Europe and the U.S. due to the latest wave of the pandemic would lead OPEC and its allies, chiefly Russia, to freeze output at its current level for at least another couple of months, rather than raise it by 1.9 million barrels a day, as had been foreseen when the group last met. 

However, the United Arab Emirates, reportedly supported by non-OPEC member Russia, had floated the idea of raising production by 500,000 barrels a day from January 1. The suggestion reportedly prompted Saudi Arabia to mull giving up the joint-chairmanship of the committee that coordinates output policy – a move that would be interpreted as a big move in the direction of a new price war, only a few months after the end of the last one.  

The failure to agree on an output level for OPEC as a group meant that it pushed back until Thursday a final decision in concert with Russia and other non-OPEC members.

By 11:00 AM ET (1700 GMT), U.S. futures were down over a dollar a barrel, or 2.3%, at $44.30 a barrel, while futures were down 1.5% at $47.17 a barrel. 

U.S. were down 2.1% at $1.2154 a gallon. 

Analysts said Monday’s developments didn’t definitively tilt the market one way or the other, but left the glass either half-full or half-empty, depending on your perspective.

“The bearish way of looking at things is that OPEC+ is far from settled on postponing its planned production increase from January, a development that the market thought as almost ‘a done deal’ prior to Monday’s meeting,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen in emailed comments. The bullish approach, he added, is to see that the delay of the OPEC+ meeting “shows that there is determination from key OPEC+ producers to negotiate and push for a deal to amend the standing agreement and not raise output as planned, to protect prices.”

With talks among OPEC members still ongoing, attention may switch later to the American Petroleum Institute’s weekly inventories data, which are due for release at 4:30 PM ET. Analysts expect a draw of 2.27 million barrels from the previous week. 

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