(Bloomberg) — Oil is heading for a fourth monthly gain with the global market tightening as investors await the OPEC+ meeting next week, watching for any changes to production strategy following a surge in prices.
While oil was swept up in a broader market sell-off on Friday, futures in New York after still up 21% this month. The recovery from the Covid-19 pandemic accelerated this year after Saudi Arabia pledged deeper output cuts, helping to drain bloated stockpiles. Early indications point to differing opinions on the way forward for OPEC+, however, with the kingdom in favor of keeping supply steady and fellow heavyweight Russia angling for an increase.
The producer group will meet amid an atmosphere of buoyant optimism in the market outlook, with traders and investment banks this week making a series of bullish calls and upward price revisions. Global benchmark Brent is up almost 30% in 2021 in the best start to a year on record.
The recent big freeze that halted millions of barrels of U.S. output exacerbated the market tightening and scarce supply is set to deepen in the coming months as North Sea fields undergo major maintenance. Prompt timespreads have firmed in a bullish backwardation structure and Goldman Sachs Group Inc. is predicting Brent will advance into the $70s through the next two quarters.
“The velocity of the demand increase over the next six months could fuel higher prices, up to $70 or $80 a barrel,” said Victor Shum, vice president of energy consulting at IHS Markit in Singapore. “World oil supply can’t keep up with rising demand unless Saudi Arabia chooses to increase production.”
Exports of five key North Sea crudes — Brent, Forties, Ekofisk, Oseberg and Troll — will slump to a five-month low of 780,000 barrels a day in April, according to loading programs compiled by Bloomberg. Bigger declines in shipments may be in store because of work in June on the Forties Pipeline System that will slash output sharply.
See also: Whispers of $100 Oil Return as Crude Shakes Off Covid’s Clasp
U.S. drillers reported almost 6 million barrels of combined production losses during the cold blast last week, while Vitol Group says the market is pricing in a strong global short-term deficit as stockpile declines continue at a rate of 2 million barrels a day to 3 million barrels a day.
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