Oil futures finished at their highest prices in a week on Tuesday after the Organization of the Petroleum Exporting Countries and its allies surprised the market by meeting a day earlier than scheduled, and decided to keep their current plan to gradually raise production in place.
The OPEC+ meeting had been scheduled for Wednesday. The news comes amid growing worries that a surge in COVID-19 cases in India could lead to notable declines in demand for oil.
The Joint Ministerial Monitoring Committee (JMMC), which reviews the oil market, had rescheduled its own meeting to Tuesday, a day earlier than previously planned.
In a statement, OPEC+ said it “decided on the continued implementation of the production adjustment decision” of the April 1 OPEC+ meeting. At that meeting, OPEC+ said it would gradually lift daily oil production by 350,000 barrels in May, 350,000 barrels in June, and 441,000 barrels in July. It had been holding back around eight million barrels a day of output, one million of which represented Saudi Arabia’s voluntary cut. The Saudis also said at that time that they planned to ease their voluntary cut over the three-month period.
The next JMMC and OPEC+ meetings will take place on June 1.
Amena Bakr, deputy bureau chief and chief OPEC correspondent at Energy Intelligence, tweeted Tuesday about the “plot twist” and said the 16th OPEC+ meeting “already happened.”
West Texas Intermediate crude for June delivery
rose $1.03, or 1.7%, to settle at $62.94 a barrel on the New York Mercantile Exchange. That was the highest front-month contract finish since April 19 , according to Dow Jones Market Data.
June Brent crude
the global benchmark, added 77 cents, or 1.2%, at $66.42 a barrel on ICE Futures Europe, the highest finish since April 20.
OPEC+ is “holding firm to its decision to increase supply, gradually and carefully, over the coming months,” said Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, in emailed commentary.
“The move comes as the group tries to balance risks — including the possibility of reduced demand from India as it struggles to control a devastating wave of COVID-19 infections — with signs of demand recovery elsewhere,” she said.
A surge in COVID-19 cases in India, the world’s third largest oil importer, has fueled worries about energy demand. India recorded more than 320,000 new cases and 2,771 deaths on Tuesday, according to the New York Times. It was its sixth straight day with more than 300,000 cases and countries around the world have started to send help in the form of oxygen supplies, equipment and tests.
“The rising number of COVID cases in India is concerning and will likely impede global demand growth, through for now the recoveries underway in the U.S. and U.K. are seen as making up for the loss,” said Marshall Steeves, energy markets analyst at IHS Markit.
Concerns about the surge in COVID case in India and Japan had fueled expectations that OPEC+ may hold off on easing production cuts and helped lift crude on Monday, analysts said.
“OPEC+ will need to weigh the risk of weaker-than-expected demand recovery over the next three months,” said Hittle.
Other than demand, another “large risk” to prices would be if the Iran-U.S. talks to restore the JCPOA Iran nuclear deal were successful, she said. A deal would likely lead the U.S. to lift sanctions on Iran, allowing Iran to bring more oil into the global market.
May natural gas
rose 3% to $2.87 per million British thermal units, ahead of the contract’s expiration at the end of Wednesday’s trading.
Weekly oil supplies data are set for release early Wednesday from the Energy Information Administration. Expectations for a weekly decline helped provide support for oil prices Tuesday, said Steeves.
On average, analysts forecast a decline of 200,000 barrels in U.S. crude inventories for the week ended April 23, according to a survey conducted by S&P Global Platts. They also expect gasoline stocks to be unchanged for the week, while distillate supplies are forecast to decline by 1.2 million barrels.