Oil sank below $60 a barrel in Asian trading amid growing concern over this week’s OPEC+ output-setting meeting.
Futures in New York fell for a third day, putting them on course for the worst run of losses since December. The alliance gathers on Thursday to decide how many barrels to return to a market that had its best ever start to a year before the current skid. Ahead of the gathering, Saudi Arabia has urged members to take a cautious approach even as signs of tightening emerge.
Crude roared higher in the opening two months of 2021, aided by the deep OPEC+ supply cuts, which include unilateral reductions by the Saudis. The roll-out of vaccines and an investor charge into commodities has also underpinned the gains, which pushed prices in New York to the highest close since 2019.
Investors are “a little bit unsure whether OPEC will continue with the support they provided over the last few months with the supply cuts,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. If there’s a higher-than-expected increase, that could make things difficult in the short term given demand is still showing signs of fragility, he said.
The Organization of Petroleum Exporting Countries and its allies must decide how much output gets restored — and at what pace — with current reductions amounting to just over 7 million barrels a day, or 7% of global supply. Citigroup Inc. thinks the coalition will boost output by about 500,000 barrels a day next month, with Saudi Arabia unlikely to continue its voluntary curbs.
West Texas Intermediate for April delivery dropped 1.1% to $59.97 a barrel at 9:31 a.m. in Singapore
– Earlier, prices fell as low as $59.88 a barrel
Brent for May settlement slid 1.1% to $62.97 a barrel
While the pandemic has lessened as a concern for investors as vaccination campaigns intensify, the World Health Organization warned Monday a potent threat remains. Global cases rose for the first time in almost two months in the past week, WHO officials said at a media briefing Monday.
Brent’s prompt timespread was 67 cents a barrel in backwardation on Monday. While that’s a bullish structure — with near-dated prices above later-dated ones — it’s the lowest reading since mid-February.
As OPEC+ weighs how many barrels to release, group leaders Saudi Arabia and Russia need to judge the likely response by U.S. shale producers. While most big publicly traded explorers in the U.S. are planning to keep output flat, smaller, private companies are seeking to grow supply after this year’s rally.
The runway to Thursday’s full OPEC+ meeting starts later Tuesday with the group’s Joint Technical Committee gathering. The JTC’s role is to review the market conditions and members’ conformity levels with supply agreements.
Traders and producers will be mindful last year’s March OPEC+ meeting ended in failure. Saudi Arabia and Russia failed to strike an accord, sparking a price war as output surged. That devastated prices just as the pandemic intensified.