James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading nearly flat on Tuesday after clawing back earlier losses. Prices slid more than 1% earlier in the session as expectations that OPEC would agree to raise oil supply in a meeting on March 4 weighed on sentiment. The earlier weakness was tied to fresh worries over slowing demand.

At 10:16 GMT, April WTI crude oil is trading $60.75, up $0.11 or +0.18%. This is up from a low of $59.45. May Brent crude oil is at $63.71, up $0.02 or +0.03%. Both futures contract reached six day low earlier in the day.

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OPEC+ May Boost Oil Output

Traders are paying particular attention to the upcoming meeting by OPEC and its allies as expectations have risen that the group known as OPEC+ would boost oil output from April. When the story first broke about 10 days ago, traders were looking for a small 250,000 barrel per day boost. But since then the size of the expected output increase has risen.

“Concerns over an increase in OPEC+ supply and an end of Saudi Arabia’s voluntary cut of 1 million barrels per day (bpd) this month weighed on oil prices, said Satoru Yoshida, a commodity analyst with Rakuten Securities.

The group meets on March 4 and could discuss allowing as much as 1.5 million barrels per day (bpd) of crude back into the market.

OPEC+ is monitoring global inventories and the rate of drawdowns will be a factor discussed on Thursday.


OPEC+ Stats Update

OPEC oil output fell in February as a voluntary cut by Saudi Arabia added to reductions agreed to under the previous OPEC+ pact, a Reuters survey found, ending a run of seven consecutive monthly increases.

Russian oil and gas condensate output fell to 10.1 million bpd in February from 10.16 million bpd in the previous month, despite plans to boost it, according to Reuters calculations based on an Interfax report citing official data.

Weak Manufacturing Data from China Raises Demand Concerns

Market sentiment was also dampened by weak manufacturing data out of China. China’s factory activity growth slipped to a nine-month low in February, which may curtail Chinese crude demand and pressure oil prices.

Daily Forecast

This could be the start of the long-awaited correction in crude oil. We’re not too worried about this move since OPEC+ has a pretty strong grip on supply and can add it and take it away, seemingly at will.

Although prices are higher than they were a year ago when the pandemic began, demand hasn’t quite caught up so a correction seemed inevitable. However, rising COVID-19 vaccinations are stirring up economic activity along with a $1.9 trillion coronavirus-related relief package passed by the U.S. House of Representatives on Saturday so I believe supply and demand are moving closer to balancing.

Certainly bond investors believe the economy is heating up as well as inflationary fears. They are expressing confidence in their assessment by driving up yields to levels not seen in a year. Meanwhile, the Fed and other central banks are pushing their agendas by saying rates will remain low for at least three more years.

The U.S. Dollar is the wildcard because when it goes up, foreign demand for dollar-denominated crude tends to weaken.

So although we are looking for a near-term correction, we don’t expect to see serious damage to prices. Aggressive traders betting on a near-term pullback will feel most comfortable playing the short side, while longer-term bullish traders will probably feel more content with waiting for a break into a value area.

For a look at all of today’s economic events, check out our economic calendar.

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