High Following OPEC+ Production Agreement
West Texas Intermediate (WTI) crude oil rose to the highest since the beginning of March on Friday, a day after the OPEC+ group decided on gradual production increases in the new year instead of a one-time rise of 2-million barrels per day that risked oversupplying a market still coping with weak demand due to the pandemic.
WTI oil for January delivery settled up US$0.62 to US$46.26 per barrel, Marketwatch reported, the highest since March 4. January Brent crude, the global benchmark, was last seen up US$0.51 to US$49.22, while Western Canada Select was up US$0.25 to US$33.78.
The rise came after OPEC+ ended an extended meeting over production quotas by deciding to increase output in January by only 500,000 barrels per day, followed by three monthly hikes of 500,000 bpd that will only take place if the market can absorb the additional supply without building up global inventories.
“OPEC+ clearing the hurdle of exiting its current cuts in a coordinated way and its focus on both growing production and drawing inventories reinforces our conviction in a steady and sustainable rally in oil prices through 2021, with implied volatilities set to decline sharply as well,” Goldman Sachs said in a research note.
Demand for crude remains weak as new coronavirus infections surge globally, with the United States seeing record numbers on new cases and deaths. Though the arrival of vaccines is expected to bring an end to the pandemic sometime in the new year, gasoline and aviation fuel use will remain weak as long as travel restrictions and lockdown measures remain in place, keeping pressure on prices.
“We do not … share the oil market’s positive interpretation and attribute the latest price strength primarily to speculative buying. In our opinion, the price rise is unsustainable given that demand is weak in industrial countries and oil production is on the increase, also in non-OPEC+ states,” Commerzbank analyst Eugen Weinberg said in a note.